“You’ve got to learn how to fall …
Before you learn to fly.
Mama, mama, it ain’t no lie …
Before you learn to fly … learn how to fall.”
— “Learn How To Fall” by Paul Simon
Streams swollen by Tropical Storm Andrea flushed a 20-pound turtle from his aquatic environs and left him edging his way across our office parking lot recently.
A kind-hearted business owner toted him the final portion of his journey, relocating him to the adjoining Tops’l Nature Preserve that connects us to 30A.
No one wanted to see the turtle attempt to trundle across heavily-trafficked U.S. 98 between Tops’l and Sandestin. Once he was gently placed on the grassy slope that evolves into the state-owned, 8-mile forest, the reptile was on his own.
Like the turtle, we are currently being carried to temporary economic safety by the Fed, which is buying $85 billion of bonds monthly and holding down interest rates. When that economic life support program will cease and what will happen to our economy and to the market when the Fed scales back quantitative easing is a concern for all of us.
Chairman Bernanke has hinted that QE3 may be trimmed in the near future. And each time Bernanke floats that tentative suggestion, markets react negatively. Now it appears that quantitative easing may continue longer than expected due to recent reports of lower than expected inflation numbers.
“Low inflation that ‘has surprised to the downside’ means the Federal Reserve can continue to ‘pursue its aggressive asset purchase program,” St. Louis Fed President James Bullard said in MarketWatch. "Labor market conditions have improved since last summer, suggesting the Committee could slow the pace of purchases, but surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame. The Fed is publicly debating whether to start reducing the $85 billion of bond purchases it makes each month.”
Many economic experts expect a market pullback to follow when QE3 is phased out. Equity markets have been fairly strong so far in 2013, and investors will likely be impacted when that happens. Downside protection during such a selloff will be vital for many.
Of course, downside protection is often important to many retired investors and investors nearing retirement. Portfolios that rely on consumer staples, dividend payers and utilities will likely show less decline.
Some items are purchased in good times and bad: diapers, toothpaste, electric power for home A/C, food and gas are a few consumer staples that are not considered discretionary items by Americans.
Companies that produce and distribute these products often weather market storms better than most. We may cut back on luxury purchases during downturns, but we’ll likely pay our electric bill and keep that A/C humming.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121~www.arborwealth.net), a fee-only registered investment advisory firm located near Sandestin. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.