Dreaded taper begins, stocks up, explanations aplenty

[RAE]

What's your allocation to equity now?

It's quite low (less than 30%). But, my situation is probably different than many others, in that my basic expenses are covered by a COLA'd pension. I also have a 401k that is invested mostly in a stable value fund, and that provides some additional monthly income.

If that was not the case, I'd likely have to bump up my exposure to equities, although I would be nervous doing so. No one knows how this $4 trillion-dollar Fed QE "experiment" is going to end, because nothing like this has ever been done before. That means looking at the history of market returns for guidance as to what may happen in the near-term future is not particularly useful right now, at least in my view.

 

[audreyh1]

I'm guessing the short bonds (2yr duration) will not go up for a few years. I'd imagine it all depends on whether there appear to be distortions (inflation, excess speculation) developing in the economy.

Right now the spread in 5yr and Tbills is 1.5%. Pretty high and supposedly above 1% it has paid to move out on the yield curve. At least according to Swedroe and DFA.

Actually, I'm expecting the shorter term including the 5yr to go up while the 10yr doesn't move much.

 

[Lsbcal]

Maybe I'm just buying the conventional wisdom that rates will go up very gradually in 2014. I'd be surprised if they galloped upwards, but I've been wrong before.

 

[audreyh1]

Maybe I'm just buying the conventional wisdom that rates will go up very gradually in 2014. I'd be surprised if they galloped upwards, but I've been wrong before.

If they do, I'm just expecting the shorter end to go up faster than the 10-hr.