Meet the New Fed Boss, Same as the Old Boss

Last week, the smart money was focused mostly on the testimony of Federal Reserve Chair nominee Janet Yellen, as she faced questions from the Senate Banking Committee during her confirmation hearing.

Now, to say that Yellen was extremely “dovish” is an understatement. In fact, Yellen seemed to discount any notion that the Fed’s massive quantitative easing, or QE, programs will create asset bubbles, either in the housing market or the equity market.

Yellen actually told lawmakers, “Stock prices have risen pretty robustly… [but] you would not see stock prices in territory that suggest… bubble-like conditions.”

Really?

This sounds just like current Fed Chairman Ben Bernanke to me. In the back of my mind, I am hearing the lyric from The Who classic, “Won’t Get Fooled Again,” that cries out: Meet the new boss/Same as the old boss…

My incredulity aside, the Yellen testimony basically cements the notion that there will be no “taper” this year, and I suspect we won’t see any pulling back of the Fed’s $85-billion-per-month bond-buying program until well into next year. Of course, the Fed always leaves itself the “data dependent” out, so my thesis could change if the data gets stronger. Still, I think we are in for more of the same with a Yellen-led Fed, and that’s music to Wall Street’s bulls.

The other big news that’s influenced markets since our last Making Money Alert came out of China, as that country’s policymakers announced several big reforms. The biggest reform was the loosening of the country’s one-child policy, a move that would allow couples to have two children if one of the parents is an only child. This policy reversal made big headlines, but that wasn’t the most important in terms of the markets.

Of greater import for stocks were the proposed reforms in China’s financial system. China says it will create a system for insuring bank deposits and create a legal path for bankruptcy. The country also plans on easing price controls on industries such as energy, telecommunications and water. There also were hints about easing restrictions on offshore securities investments and mergers and acquisitions.

The China reforms caused a big move higher in China-focused funds, especially the iShares China Large Cap (FXI). That fund is up more than 9% over the past five trading sessions, a clear sign that Wall Street has embraced the changes on tap in the world’s second-largest economy.

Right now, subscribers to my newsletter are benefitting mightily from an allocation to China-based funds. To find out how, I invite you to check out Successful Investing right now.