The Fed's decision to start reducing it's purchase rate, while notable, obscures the fact of the overall indebtedness being taken on in the name of trying to jump start the economy.
I guess any movement towards a more normal policy is welcome but I still come away with a lot of uneasiness. Jim Grant, most lately, and others have been discussing the asset inflation that is the result of the Fed's activities. If a small percentage own the lion's share of the assets and the fed is trying to push asset values up by lowering the rate at which cash flows are discounted then it stands to reason that the wealthy are obviously getting more so. He points out that records are being set in purchases of rare automobiles and art. All true, and all signs that inequality in economic outcomes is increasing and to me this is depressing. I would hope that the rising tide lifts all boats, but I fear that many are left behind.
But, as investors, we need to invest based on the information in front of us and not what we might hope it would be. I do not see anything currently standing in the way of asset prices continuing to go up. My equity allocations are going to be going up. But, and I think this is important, I will be reducing my corporate fixed income exposure. I have written about PFF recently and it is clear to me that these instruments are sub-optimal for a growth portfolio and even for an income portfolio as I have been trying to build. Right now, we need to invest for growth and that means equities.
But hold your horses! We do need some balance. Usually fixed income is the way to balance a portfolio, but I would posit that we should only consider government bonds. Further, because of the future potential dangers of the Fed's path and it's implications for the US dollar, it will be important to mix in global equities and perhaps global government bonds (the only real alternative in my eyes are German or Swiss bonds).
For now, enjoy the upswell and use it to sell any positions that are not your favorites in particular on the fixed income side. I still like JPS, MHN and VTA but largely because they are at such massive discounts to net asset value (NAV). But, reviewing my holdings, while I think T is a bit cheap versus VZ, it is not a favorite and I would rather hold a bit more emerging markets equity VWO.