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SocGen Taper Tantrum Post-Mortem: "FOMC On Track For September Tapering"
Who though that a term we coined over a month ago would suddenly get so much airplay: why, it was none other than billionaire hedge fund investor David Tepper who said days later (and just in time to top tick the market) not to fear the taper, that it is a bullish sign. Looks like it wasn't. But at least Tepper sold everything he had to sell by now so someone is happy. As for what happens next, nobody still has any idea, although the first, and so far best, post-mortem of Bernanke's predicament comes from SocGen, whose opionion is simple enough: FOMC on track for September tapering.
From SocGen:
FOMC on track for September tapering
Today, we expected Bernanke to provide more helpful guidance on asset purchases and on eventual exit steps. We got what we wanted. Bernanke reiterated that tapering is likely to begin “later this year” and end around mid-2014, i.e. when unemployment reaches 7%. Regarding exit principles, the only new colour was that the majority of the FOMC is now against ever selling the Fed’s MBS holdings.
Tapering guidance much improved
We’ve complained in the past that the guidance on asset purchases was too vague and flat out unhelpful. The Fed made a large step today toward addressing our concern. Rather than laying out specific conditions for tapering, Bernanke suggested that if incoming data is broadly consistent with the Fed’s forecast, it will be “appropriate to moderate the monthly pace of purchases later this year.” The Fed projects that the unemployment rate will average around 7.4% in the fourth quarter (vs. 7.6%) today, which implies that the Fed sees a 7.5% level or thereabouts as consistent with tapering. After that, Bernanke suggested that the Fed will continue to reduce the pace of asset purchases through the first half of 2014, or until unemployment falls to roughly 7%. This would imply a roughly $10bn reduction in asset purchases per meeting.
The new guidance on tapering is broadly consistent with earlier hints, notably with the three conditions laid out in the minutes of the May meeting. At that time, most participants saw three criteria for tapering: continued progress on employment, improved confidence in the outlook, and reduced downside risks. It was probably not coincidental that the only changes in today’s FOMC statement alluded directly to two of those three conditions. First, in the economic assessment, the language on labor market conditions was changed from “have shown some improvement” to “further improvement”. And, the statement significantly downgraded downside risks to the economic outlook.
Back to data watching
The Fed’s economic forecasts have become an implicit benchmark against which investors should be evaluating incoming data and re-pricing the timeline on asset purchases. The Fed expects growth to average around a central tendency range of 2.3%-2.8% (or a midpoint of 2.5%) this year. Since Q1 GDP expanded by 2.4%, i.e. broadly in line with the full-year forecast, we simply need to see more of the same. Employment growth has averaged at 175,000 jobs per month so far this year vs. 80,000/month trend growth of the labor force. A mere continuation of this performance will continue to put downward pressure on the unemployment rate.
Our central scenario
We maintain our call for a September tapering. Prior to today’s meeting, we had assumed that asset purchases would come to a full stop by the January meeting. While Bernanke’s guidance suggested that buying will continue until mid-2014, our own forecast trajectory hits the 7% level of unemployment a bit earlier, before the end of Q1. We therefore still see the risks skewed toward a shorter tapering cycle than consensus currently assumes. After that, there is likely to be a long pause in Fed policy. Rates are still on track to remain at zero until 2015, and in fact Bernanke hinted that at some point the Fed could lower the 6.5% threshold for rate hikes. We assume that MBS runoff and reserve draining operations will begin about 6 months before the liftoff in rates, i.e. in late 2014. MBS asset sales now look unlikely, but it is not clear at this stage whether the Fed will reduce its Treasury holdings through sales or redemptions, or simply maintain a large balance sheet and allow the economy to grow into
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If we end the month around these levels in fixed income the 401(k) crowd and the PIMCO crowd will have two months of an ass kicking on their statements. Throw in a correction in Stawks and there will be a FLOOD of money going into money markets just in time to break the buck on the NAV's, Should be one hell of a summer.
Taper in September, Dow shits the bed. The sheep will be crying for "QE as much as it takes" to get the market back up. Hyper something will probably not be far behind.
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no...really...knucks.......just come out and say what you mean...........dont be like Ben......all cryptic and shit..................just tell us what you think..............................
Was just coming home from lunch with Mrs K and telling her about today's meanderings... the announcement and naught till Benji starts talking. Then like Emril! BAM!
Avast mateies, confusion for stern to bow!
Everything under the sun falls apart. Everything. Said F-it, think I'll just crawl into a hole and hide for 10 years until this all blows over.
To which she responded... "As if it ever blows over" in a tone of finality like it ain't.
And she's a pretty smart lady.
So guess I can't hide for a while... honey-do lists
Her view is that with all the trade agreements, Internet, etc., nobody's gonna be getting their jobs back, no jobs, no big disposable incomes, taxes going up, more big goobermint policies... we're fuck-o-laed.
And she don't spend all day in the invest-o-blog-o-sphere, either.
I tell ya', it's soooo bad. There's no other reason for this action, today.
And just think.. all because a few weeks ago, Ben made an off the hand comment about tapering..... that's how it started, remember?
Why the fuck is a central bank got this much power and influence, anyway?
A fucking comment, ain't even done, yet, if ever!
Knucks it was going to shit well before a few weeks ago.
knucks...a good part of me just thinks the country will continue its slow rot............right before the eyes of its citizens...............barely perceptible to most as the bureau of truth will cover the fester...............your wife is the smart one.................
Yes, Kito (and Fonz) methinks I've said many a time we're already well into the classical decline and fall of empire by standard historical standards, a la British Empire, etc. It's text book (non propagandized) classic.
Slow, long and painful, but only in such small increments many do not realize it.
Here's a repeat of a piece I wrote here on the Hedge in October of 2011.....
....................
The crazy train
I had this dream a few years ago about being lost in an immense, complex leviathan underground somewhere like in London. Indeed, I'm sure it was set therein as a deep distant memory of my many years there. It was a devil's marriage of the old steam/coal rails and underground. Choke damp black soot, hot, humid, dim lighting. An Impossibly Immense, Dark, Evil Maze. Very Impersonal, Frightening. I distinctly remember being very frightened. In my dream.
At one point, I had to change trains, and to do so, people had to scurry across tracks as well as climb over platforms. We were like rats. I more so as not used to this Kafkaesque turmoil, for I had become a Stranger in a Strange Land. Dirty, dark.... But this was "normal" to the others, the denizens. Those who’d had no thoughts as to the quality of their environment. No thoughts as to its quality. Simply accepting what they considered the inevitable, as if a gigantic machine drove the universe, never to be challenged or questioned. A future where everything had all Gone to Hell. And was now considered Just the Way It Is These Days. The good times of a higher quality of life, sense of security, lack of paranoia and fear were mere stories, tales, folklore of the past.
The New Normal....
And all of a sudden, reading, it just hit me.
We've arrived at that dark, scary, evil station of that nightmare, missing of civility, devoid of ethics and morals, mentally and physically filthy, at risk of life and limb with respect to everyday ordinary experiences.
We're Aboard The Crazy Train.....
Indeed Fonz - They could be taking the cash out and buying physical gold / silver as well around $1300 oz.
The MSM is beginning to leave Obama's corner and pointing figures at him.
Obama said that Bernanke has "stayed longer than he wanted, longer than he expected to". Sounds like a dropping a dime, Chicagoland style to me.
Bernanke says that the US Fed Gov fiscal situation is the real drag on economy as a "touche"?
Obama will push for Ms Smellin' like Yellen to be appointed as that is when all hell breaks loose. Gonna be a great summer.
Bernanke to step down to "spend more time with family" (before the collapse of america)
The taper tantrum continues. Perhaps, what we need is $100bn a month or so in printing to get this economy going.
http://dareconomics.wordpress.com/2013/06/19/around-the-globe-06-19-2013/
Party over....Ben, get out from under that bathroom cabinet and stop licking that empty can of Sterno....the keg is floatin', you don't have to go home but youz can't stay here GOODNITE!
'Back to fake 'data' watching'....yea sure whatever.
I don't trust what any one of these yahoos says.
So ... I'll just keep my personal nose the grindstone and hope like heck some of these guys will crock
Gold down again. Was a sell when the Monthly MACd turned negative in any case
Sell when its on fire sale? You've got to be fucking kidding me.
I guess that strategy works for the paper humper crowd.
MACD smack D.....as if any of that shit matters anymore
The promise to deliver gold was never a buy to begin with. Specially when it's coming from the usual banksters.
Go sell paper for paper, and earn some paper profits. Have fun while you can. I will keep my rocks, and keep adding to them while it's still possible.
ben will taper and head off to his castle...........protected by a moat.....with armed drones flying overhead...............folks the taper is coming.............and the markets arent all that upset over it (see vix)....................the lunatics that run the world have convinced the moneymen that there is a recovery.......that OLD GLORY can wave in the winds of recovery.................growth....and progress............this sort of puts a damper in all of us who thought armageddon would arrive the minute such taper talk was announced by ben.................................
Agreed Kito. the only thing I would differ with you on is that when the taper is finally done next year they will be at about 200 bil in monthly purchases.
one never really knows what lurks on the fed balance sheet...................or what really is hidden in those gold vaults...................for all we know................ben may have been spreading triple the stated monthly amount of bennybucks around the world...................isnt it great.......a secretive, furtive, diabolical cabal decides how "capitalism" should work.............................
Yep. Good luck allocating capital in this f'd up world.
Yep, why do you think they officially stopped publishing M3 in 2006? The only thing for sure is that it was not for the stated reason at the time - it was too costly to calculate/compile, LMFAO>
Asia market on 6/20 will be interesting, especially Japan. If Japanese bonds fall, people may see the invisible hand tomorrow.
Need to cycle QE for the 2014 election cycle unless the Nippon swan arrives beforhand.
I will buy gold when it is going up. You keep averaging in
Good luck getting the physical...
When will that be?
Your paper gold shit isn't ever going up again. When it hits $0, I hope you'll be a happy paper holder.
"We expected Bernanke to provide more helpful guidance." More like: "Folks, here's what we're gonna do, but I'm obfuscating to add uncertainty so you won't front-run us, as god forbid that markets could ever set asset levels." I'm perhaps a bit naive, but there has to be a less silly way to go about this, with gyrations for the next year based on tweets and bear entrails. It's like they admit they're in a feedback loop with us, but think we can't hear the deafening screech.
LOL...you literally couldn't make this shit up...
Today, we expected Bernanke to provide more helpful guidance on asset purchases and on eventual exit steps. We got what we wanted. Bernanke reiterated that tapering is likely to begin “later this year” and end around mid-2014, i.e. when unemployment reaches 7%. Regarding exit principles, the only new colour was that the majority of the FOMC is now against ever selling the Fed’s MBS holdings.
Serously, does anyone believe any of this horseshit?
Look, the Fed can buy munis to replace the Treasuries and MBS they would rather buy, and it will dovetail nicely with the state and local bailouts that will be needed.
Many on CNBC in tears as markets fall. Bad for selling more ads.
The taper tantrum is more likely to be a 500/day point drop in the djia... not a measly 200
... and PMs keep getting pounded... $1347 and change... funny how everyone has forgotten the debt ceiling in September. Remember 2011?
payper beets rocke
anyone who thinks that bernquacke or his successor will taper is a fucktard......qe is locked in as far as the eye can see.....there is no choice because kicking the can down the road is the biggest pomo in town...
taper = crash, more = hyper
someone take bernquacke's doctorate away from him before destroys us all....
don't let a crisis go to waste, and if there is no crisis, create one......