It's Time the Fed Eased Off

 | Jun 19, 2013 | 12:00 PM EDT  | Comments
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Stock quotes in this article:

aapl

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FIO

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gsm

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ibm

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gm

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cost

It tells of today's times when news coming out from the Federal Reserve's meeting has more market weight than news about unemployment, GDP, inflation, housing or other barometers of economic health.

Over the past four years, the market has become conditioned, or should I say addicted, to Fed policy with respect to monetary stimulus measures. As far as some are concerned, the Fed should never stop buying securities.

Just as there were grave consequences for the Federal Reserve not to step in back in 2009, the consequences of the Fed not stepping out become more and more acute with each passing quarter. Here's a newsflash: The U.S. economy can be in fantastic shape when the Fed ultimately pulls the plug but it's likely the market will suffer regardless. Sooner or later, the market will contract when the Fed pulls away. Hopefully, the Fed decides to ease up sooner.

I can count fewer than 30 stocks that belong to the 52-week low list, an interesting indication of where stock prices are today. Most of us have never heard of the names on that list, such as Globe Specialty Metals (GSM) and Fusion-io (FIO). Even so, despite trading at a 52-week "low", Fusion-Io commands a market cap of $1.3 billion, is unprofitable and trades for nearly 3x equity value.

On the other hand, hundreds of stocks are making new highs each day for no other reason than folks now want equity exposure instead of holding zero returning cash. Such a condition gives many investors a false sense that they are excellent stock pickers, a belief that becomes dangerously magnified with each and every "correct" stock pick that shoots higher.

I find it ironic that Apple (AAPL), the most beloved stock of all time several months ago, now seems of little interest to investors who won't bite if a stock isn't climbing within a week or a month.

The folks who are interested in Apple today are referred to as value investors and it's easy to see why. I believe that in a declining market, Apple shares will outperform, which to an intelligent investor is a far more superior attribute than beating the market when it is advancing. I would put other high quality names like IBM (IBM), General Motors (GM), and Costco (COST) in that bucket.

 By the end of the day we have a better color on what the Fed is thinking and we will see precisely just how much the market is today joined at the hip to the Federal Reserve.

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