Art Cashin Asks (And Answers) If The Fed Has Been Engaging In Stealth Tapering

Tyler Durden's picture

Those following day to day flow (buys and sells) data of Treasurys and MBS by the Fed, are aware that in the past few months Ben Bernanke's net purchases of MBS have declined modestly. Naturally this is not due to a stated policy of tapering one or more purchasing programs (at least not yet), but due to what appears to have been a drop off in origination, as confirmed by recent plunging mortgage applications data (and which today literally crashed out of bed). So is this net change in Fed flow, in a world in which Fed flow is all that matters (sorry "Stock" purists: 2009 called, they want their discredited ideas back) an indication of stealth Fed tapering? Read on for Cashin's explanation.

From Art Cashin of UBS

Tapering vs. Supply And Demand – Last week, three members of the FOMC called on the Fed to end a portion of their Quantitative Easing (QE) program.

The portion that the three wished to end was the Fed's purchases of mortgage backed securities (MBS). The three amigos struck two chords. First, the housing market had rebounded enough that it should be taken off life support.

More importantly (to us, at least), were their indications that continued Fed purchases in the MBS area could be disruptive and counterproductive. They were already influencing (negatively) the efficiency of that market.

We have noted for weeks the risk of the Fed staying full throttle as the numbers of treasury bonds and mortgage bonds were starting to decrease. There were some estimates that the Fed was already purchasing 90% of the MBS issuance.

When I have a question on mortgages, I turn to my good friend, Barry Habib, who is the resident genius on the topic. (Actually, Barry is the resident genius on lots of things financial, but I don't want to give him a big head – well-deserved or not). Anyway, this was Barry's comment:

As you know, the Fed has been stating that they will purchase $40 billion in Mortgage Backed Securities (MBS) and $45 billion in Treasuries, for a total of $85 Billion each month. However, the Fed has actually been purchasing much more than that because of reinvestment of principal from refinance loans and principal payments. Earlier this year, they were purchasing over $80 billion per month in MBS alone. This is more than double the amount the Fed stated they would be purchasing. But over the past two months, the Fed has eased up a bit on the gas pedal, as these purchases are now closer to $65 billion per month. This is still  obviously more than the advertised $40 billion, but less than what we had seen earlier this year.


Has a little tapering already begun? The answer is no. We believe that the slowdown in Fed purchases is due to fewer loans being originated for refinancing in March, when rates had spiked.

Barry went on to note that the resultant drop-off in MBS paper may have prompted the Fed to scale back purchases (lest they disrupt the markets thoroughly).

He pointed out that there was a burst of refinancings in April (nailing down low rates before they rise?). Those loans will close in June, which could result in a new flurry of "paper" for the Fed to buy.

If the Fed does return in earnest, it could cause a mild rally in MBS paper in general. So, added supply could reignite the Fed whose activity could then raise prices. Lewis Carroll would have loved it. Thanks Barry!

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
IridiumRebel's picture

Tepper. Taper. TIPS. Top?

nope-1004's picture

"Green shoots, Recovery, Exit Strategy, Systemic Risks, Tapering, QE, ZIRP, TALF, TARP, cash for junk, ........."

New Age Economic Terms from the PhD muff-face himself.


King_of_simpletons's picture

"Stealth Tapering"


Why not ? Everything is a lie these days.

Jumbotron's picture


....the algos are listening.......

TheCanadianAustrian's picture

Wondering whether Bernanke has been stealth tapering is like wondering whether an employee has been smuggling money into the cash register.

aint no fortunate son's picture

stocks jacking up on a whiff of hope and puppy dog dreams that the spigot opens again in June

CVfriendship's picture

However, the Fed has actually been purchasing much more than that because of reinvestment of principal from refinance loans and principal payments.

Can someone please explain this. Does that just mean a new MBS is written when the flurry of refi's happen on a previous MBS the the FED already owned thus they buy that one again plus the fresh ones being written that month?

Thanks, and I hate this big steaming pile of cow dung....literally speaking.


asteroids's picture

The FED should suggest that the "food stamp" program be expanded and the benefits increased to include mortgage payments.

Jacque Itch's picture

ZH posted a weekly letter from Ron Paul a few weeks ago that the Fed's purchases were around $100 Billion in both March and April.  BS everywhere.

eigenvalue's picture

Forget about Ron Paul. He is just an insane old coot. The Fed is what makes the US a great country. Ron Paul wants to end the Fed. What a putz.

ACjourneyman's picture

What a crackhead, enjoy the feds dick in your ass when this mess crashes.


Bangin7GramRocks's picture

And have fun cleaning the santorum from your sheets too!

Dr. Engali's picture

Okay..that one was pretty funny.

redd_green's picture

The Fed, the front organization for biggest bunch of crooks in world history, makes the us "great"?  Man, you have got to put that crack pipe down.

Cult of PersonALity's picture

@ eigenvalue       /sarc      there, fixed it for you

angel_of_joy's picture

The eigen non-value is collecting red arrows again.

Nothing to see here people, move along...

francis_sawyer's picture

The only thing 'tapering' in Art Cashin's world is the scotch in his glass...

Ghordius's picture

cheers, then!

btw, "the housing market had rebounded enough that it should be taken off life support" - I promised a friend to repeat here a rant of his. He is French, and full of sounds of fury about the USD's global reserve currency status

according to him, the US housing market will never be "healthy" as long as it's structurally supported for the Greater Glory of the HomeOwner's dream

his back-of-of-the-envelope calculation: 30% of the "market" price of a house in the US is supported by state fiscal/monetary policy and state-orgs (like Fannie and Freddie)... since the seventies

new game's picture

so cash buyer should get substantial discount?

francis_sawyer's picture

If anybody had two wits about 'em anymore, instead of buying a house they'd buy about 3 little acres [some wooded], with a well & hopefully a creek or lake nearby... Then sink the rest into a bullzoder, a few 50' containers & go to town...

new game's picture

interesting as i have 37 acres with small 3 seas cabin with well and water near by. 4-sale at 83.5k and no fukking takers.

see, i want to be free to to roam...

Aurora Ex Machina's picture

Ahh, America. Try that in Europe, you'll want to move your decimal place one step to the left. (Only slight hyperbole).

francis_sawyer's picture

Any 'types' that would be interested in that kind of setup are going to pay cash & not fuck with mortgages or bankers...


I'd be willing to bet that if you could subdivide & still provide the same H2O access to each, you'd find takers...

SheepDog-One's picture

Must....Blow....Moar Bubbles...

disabledvet's picture

Not gonna get in the way of the dark machinations of course but the simplest explanation is the private banks won't front run anymore. Again this is all new to me (the bond thingy)...but I'm not afraid to plunge in, lose money and insodoing learn. Never recommended anyone follow fact said the exact opposite. Classic "buy high, sell higher" trade...but I had an itch to scratch and when no less than Satan himself invites you down to his world "to see how the other 99% are doing" let's just say you don't want that guy as your enemy either. The forever rush to liquidity continues is so much easier...WAS so much easier when we could just focus on the economy. Reagan was the last in my view...Clinton was close but now we know the whole thing was a Scam. I do agree with France..."who are these excessive Americans?" of all the people to ask of course...

Herd Redirection Committee's picture

You are a debt slaver, disabledvet?

Possible Impact's picture

Whose nickname is "Moar Bubbles"?

(It must be someone in Washington DC or New York right???)

Sutton's picture

Weird.. It's now ALL FED, ALL of the TIME

Why did my father and uncles fight for this country?

LawsofPhysics's picture

"Why did my father and uncles fight for this private bank?" - fixed.

DeadFred's picture

So Bernanke and Krugman could be fawned over? I give, what's the right answer?

e-recep's picture

if the central banks stop printing, the governments are fucked.

if the central banks keep printing, their fiat currencies are fucked.

Ghordius's picture

then let's gently fuck the governments. there is a word for that: balanced budgets. just an opinion

e-recep's picture

well, the governments hold the guns and history tells us that whoever holds the gun will have the last say. so I'd expect that the governments will force the central banks to print to infinity even if it means the death of those particular fiat currencies.

Ghordius's picture

might be, but we have here a different opinion: if you hold the street, you have the last say. we had, after all, more revolutions since yours, more than I can possibly elencate here. we'll see...

Winston of Oceania's picture

How can a politician BUY VOTES unless they run a deficit to purchase the votes in the first place? It is all about staying in power whether you are a central planner for the Banksters or the Gub'ment it's all about being a floating turd and not a sinker.

new game's picture

question? fed buys these mbs's; does it have any interest in the actual property? just the security?

dumb question?-be honest...

Ghordius's picture

central banks usually are not interested in such collateral, they prefer liquid, marketable and in particular uniform

this was one reason why securitization was so strongly encouraged, in the US, both banks and the FED liked the idea of huge areas of buildings having the same price, the same kind of owners, and so the same risk (in theory) - which gave the rise of CDOs and MBSs

rosiescenario's picture

No reason to taper....M2 velocity too low.....but one day that may change and then all the current printing will result in hyper inflation....but when???

Life of Illusion's picture


No more inventory left. Loan mods and refi are all but worked over. Inventory for cash fund buyers yeild rental return getting to low.

Larry Summers next?



Dr. Engali's picture

The mortgage market has rebounded enough? Wait until the Bernank stops buying MBSs and  rates go up to 5 or 6%. we will see just how quickly the market blows up again. Go ahead Ben I dare you.

LawsofPhysics's picture

More propaganda.  There is no "tapering".  Let's see what treasuries do today. tick tock...

Yen Cross's picture

    The Fed. isn't stealth tapering. The Fed. is scared shitless, to do anything.

LawsofPhysics's picture

Please, so long as people accept FRNs in exchange for their labor and physical assets of real value, the Fed isn't scared of shit.

Yen Cross's picture

  If anything the Fed. would be secretly buying up more bonds.