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With few details on the stimulus exit strategy, managers prepare for the inevitable change in market behavior - Potomac

Friday, October 02, 2009

From Kirsten Bischoff, Opalesque New York:

Although the exact details of an exit strategy for the US government-sponsored financial stimulus have yet to be determined, when it does begin some managers expect to see yet another shift with markets returning to fundamentals based trading.

"Since the start of the economic crisis, investors and managers alike have been sorely tested," said Thomas Lott, President of Washington DC-based Potomac Portfolios, "especially with correlations between asset classes and within markets so convergent. We've seen two distinct trading patterns during the 24 months," he said, "first, a rather normal period through Feb '09 when fundamentals, poor as they were, strongly favored managed futures over stocks, followed by a more abnormal period as markets succumbed to artificial stimulus, quantitative easing, and low government-sponsored interest rates."

Signs of discord over details of Fed's exit from market stimulus While the discussion has started on how the government will eventually ease the markets off this artificial stimulus, the Wall Street Journal reported this week of a certain level of discord between Fed policy makers regarding exactly when the withdrawal will take place. While Fed Governor Kevin Warsh has stressed the importance of a timely exit, Dennis Lockhart, president of the Atlanta Fed recently express......................

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