Tags: Timmer | taper | tantrum | stocks

Fidelity's Timmer: 'Taper Tantrum' Makes Stocks 'Unpredictable'

Friday, 31 May 2013 08:55 AM

By Dan Weil

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All the uncertainty surrounding when the Federal Reserve will taper its quantitative easing (QE) is creating uncertainty in the stock market too, says Jurrien Timmer, director of global macro at Fidelity Investments.

"The stock market has almost become an extension of the bond market," he told CNBC.

"The [stock] market has become very unpredictable."

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Fed officials have voiced a range of views about when the central bank should begin to shrink its $85 billion in monthly purchases of Treasurys and mortgage-backed securities. Fed chairman Ben Bernanke has said tapering could begin in a few months.

"The Fed knows it eventually is going to have to taper," Timmer said. "So now we have the taper tantrum. It becomes unstable here."

The 10-year Treasury yield reached a 13-month high of 2.23 percent Wednesday and a further increase could hurt stocks, he noted. "If they run to 2.5 percent, at some point that will start to undermine the equity market."

The yield stood at 2.09 percent early Friday.

"It looks like speculators in the bond market — the bond vigilantes — have finally come out of the woodwork," Timmer stated.

"Maybe the speculators are feeling more comfortable selling Treasurys trying to anticipate a 1994 type of scenario where the Fed has to exit in a meaningful way," he added, noting that 1994 was the worst bear market in the bond market ever.

Meanwhile, Timmer is bullish on gold. Its April 15 low of $1,336 an ounce "seems like a pretty natural floor," he said. "Based on some of my analysis, gold should be at $2,000."

Some experts say the lack of imminent QE tapering bodes well for stocks in the short term.

"The take away from [Thursday's] economic statistics is that there’s going to continue to be a bias to keep QE in place," Matthew Kaufler, a fund manager at Federated Investors, told Bloomberg. "As long as that perception exists, it’ll be positive for financial assets."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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