Worries that the Federal Reserve is about to slash the amount of monetary stimulus it is providing are overblown, says Tony Boeckh, founder of Montreal based Boeckh Investments Inc.
Writing in his latest market letter, Mr. Boeckh says he suspects all the chatter about the Fed reducing its aggressive bond buying program, known as quantitative easing or QE, is likely an attempt by the U.S. monetary authorities to cool off markets a bit, rather than a switch in stance away from providing high amounts of liquidity to markets.
"The Fed's recent discussion of tapering off QE should be interpreted as an attempt to talk down froth in asset markets, rather than a serious intention to trim liquidity," he says. He expects the Fed's loose monetary policy will be in place well into next year.
Markets are currently on alert for any signs the Fed might scale back its bond buying. The worry is that if there is less stimulus, rates will rise and take down bonds and dividend paying stocks, along with the stock market in general.
Mr. Beockh has been telling clients that both stocks and gold are in a long-term bull market, although he says current equity prices are so lofty they "do not provide much room for disappointment."
On gold, Mr. Beockh recommends holding a 10 per cent to 15 per cent exposure as insurance in case of financial panics, and he views the current gold price weakness as a good point for investors to rebalance portfolios to gold to reach his allocation range.
He also had a good word to say for gold producers, noting that the shares are trading at valuations that are close to those of base metal miners, "a situation that rarely occurs. This bearishness in this sector seems a bit over done. There are some high quality medium sized producers that are being tarred with the same brush as the big players that have had major problems controlling costs and entering into expensive acquisitions," he says.