by Harrison C. Willner, C.C.O.
Investment Advisor Representative
Looking back at 2014, the largest overarching development was the taper of the Fed’s quantitative easing program. The QE program, meant to provide liquidity through government purchases of bonds and similar debt instruments, ultimately raised the Fed’s balance sheet by $3.5 Trillion and bolstered market growth before culminating in October of last year. Contrary to what many expected, the markets tolerated the taper without much undulation, due in large part, to the continued assurances by the fed that rates would remain low for the foreseeable future. Encouraged by this assurance, markets trended up for the year gaining slightly over 10 percent. That being said, 2014 wasn’t entirely devoid of volatility.
While markets tolerated the taper of the quantitative easing program, the fourth quarter of 2014 saw an increase in volatility brought about by a somewhat unexpected glut in the supply of oil. As companies in the United States and Canada are able to more efficiently tap reserves in previously inaccessible drilling sites, OPEC finds itself in danger of losing its coveted oligopoly status. Recognizing the possibility of losing market share, OPEC has continued to keep production high and prices low in hopes of squeezing out Western oil producers. This has driven spot prices on oil to a 6 year low while also increasing overall market uncertainty. At its current price, even the Saudis, the largest player in OPEC, are losing money. However, they have a larger cash reserve to fall back on and are using it to outlast the newer producers. Ultimately, OPEC will run low on cash or the newer entrants will be permanently forced out thereby driving prices, and by extension, volatility, back to their normal levels.