Where Is The Taper Priced In?

Divining the impact of 'taper' expectations and growth expectations is difficult but one thing is clear - not all markets have reacted in the same way to the Taper/Un-Taper discussions since the last FOMC. However, there is one indication that concerns us greatly...

In general, the interest rate complex has remained very much in the taper camp... (especially notable is the elevated levels of the implied volatility - which suggests this is NOT about growth but about central bank support uncertainty)

But the credit and equity markets have generally retraced their Taper reactions... as levered carry piled back in...

But since the Un-Taper jawboning began... gold has outperformed

However, there is one rather concerning indicator - credit implied volatility is very notably elevated and is the clearest indication that the big professional money thinks a taper is coming and are aggressively hedged. With the massive overweight positions that are still in place (and that Bernanke tried to disinflate and failed), they know that any attempt to sell (which we saw in May and June) amid the illiquidity of our new normal market is impossible (and entirely self-defeating).

and just remember who's buying stocks and who's selling... to keep that equity dream alive...

Charts: Bloomberg