As an early Christmas gift, the Fed has finally delivered on it’s taper. After being previewed and planned for months, the fed finally took a major step towards winding down QE this week.

Santa has also been previewing and planning his Christmas gift list for the past few months, catering to what kids these days are expecting. Check out this heritage blog I came across that compares what kids were asking for 100 years ago compared to present day. It really makes you think twice about perspective and expectations when you see food and mittens within the top 5 wish-list items in 1913 compared to a Furby Boom (whatever that is).

Back to Santa Bernake’s gift, financial markets tripped over themselves on Wednesday after the U.S. Federal Reserve announced that it would begin to taper asset purchases beginning in January, reducing the combined flow rate of quantitative easing to $75 billion per month from $85 billion per month.

The basic motivation is economic in nature and reflective of a stronger economic state – while it’s a modest taper, it symbolizes a move towards higher hopes for the future and that means happy media, happy market (my new version of happy wife, happy life).

Because tapering represents the fed’s vote of confidence and especially thanks to the conditional & careful language used in the announcement, the market response has been happy and green. Bond yields hold steady while stocks and the US dollar have risen now that uncertainty is out of the way. As our RBC Chief Economist Eric Lascelles said during his commentary yesterday, this is end of an era – “the end of unconventional and unorthodox stimulus …this is the fed signaling that it’s on the way and I see an economic recovery taking full bloom over the span of 2014”.

While there is some concern regarding inflation, the idea of normalization is still on the horizon with a downgraded degree. While the taper has begun, rate hikes still aren’t expected until 2015, at the earliest (even if unemployment rate reaches the 6.5% threshold) and they will be gradual.

Wishing you and those you love all the very best this holiday season!

Enjoy the weekend.

D.

Dian Chaaban

Investment & Wealth Advisor

Chaaban Wealth Management Group

416.842.4234