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Guest Post: Why The Fed Likely Won't Taper (For Long)... Anytime Soon

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

 

 

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Tue, 11/05/2013 - 14:57 | 4123582 Hedgetard55
Hedgetard55's picture

Three years late and a trillion short. ZH commenters have been saying the same thing since Berstanky printed the first QE dollar.

Tue, 11/05/2013 - 15:00 | 4123591 nope-1004
nope-1004's picture

No kidding.  The PR campaign by the FED using idiotic words like Exit Strategy and Taper flies directly opposite to their actions.

The FED will increase QE in the future, guaranteed.

Although, if Bernocchio wants to prove me wrong and make me look like a complete fool, then please mr. phd, taper.

But you won't because you can't.  Case closed.  FED full of BS.

 

Tue, 11/05/2013 - 16:24 | 4123602 King_of_simpletons
King_of_simpletons's picture

Look at how far we have come. Is this still the capitalism that we preach to others - have the central bank boost the stock market for ever. How can the politicians talk about Free Markets with a straight face anymore. Of course they are a shameless bunch, anyway.

Tue, 11/05/2013 - 17:16 | 4124140 El Viejo
El Viejo's picture

They can't taper because the enslaved poor can't borrow.

First the icey cold water fills up steerage then it rises to drown them all.

Tue, 11/05/2013 - 18:38 | 4124529 Ignatius
Ignatius's picture

'Taper' is the talking point excuse used to create distance while they naked short the gold and silver markets.

Tue, 11/05/2013 - 15:36 | 4123707 Silver Bully
Silver Bully's picture

'The FED will increase QE in the future, guaranteed.'

Si senor. There is NO WAY the Fed will back off of printing money. Not ever. Not until they eventually kill the dollar.

Will the Fed stop printing and let the politicians hang themselves on deflation? Or give up their most favored method of wealth transfer?

Are you kidding?

They will print and prop up the stock market AT ALL COSTS. I had to laugh the first time the word 'taper' became a media buzzword. I'm betting the person who pushed 'game changer' thought this one up too.

Tue, 11/05/2013 - 18:51 | 4124568 asteroids
asteroids's picture

I think they stop printing when, not if, a pension fund blows up.

Tue, 11/05/2013 - 15:02 | 4123598 ejmoosa
ejmoosa's picture

You can keep a brain dead patient alive a long time on life support.

Doesn't mean that patient is going to rise up-ever.

Just means he is not officially dead.

And the beat goes on.

 

Tue, 11/05/2013 - 15:16 | 4123634 NOTaREALmerican
NOTaREALmerican's picture

Re:  ZH commenters have been saying the same thing since Berstanky printed the first QE dollar.

Most of us have economic OCD.    It's a curse.

Tue, 11/05/2013 - 16:34 | 4123968 Hal n back
Hal n back's picture

where does a few hundred billion in extra deficits for govt due to health care fit in--

 

If you like your deficit, you can keep it. period

Tue, 11/05/2013 - 19:51 | 4124784 Serfs_Up
Serfs_Up's picture

HEY BERKY, OLE YELLEN, OBOZO Et Al.... DOUBLE FUCK YOU !!!!

 

 

 

 

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                              (.(….(….(…./.)..). .........(..(. \….)….)….).)
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Tue, 11/05/2013 - 14:58 | 4123586 insanelysane
insanelysane's picture

They will taper if the Tea Party starts looking good in the polls come next year.  That may be improbable but each party is as much a bunch of ass clowns as the next so anything can happen with ACA, budget talks, wars, etc.

Tue, 11/05/2013 - 15:01 | 4123593 ejmoosa
ejmoosa's picture

As soon as they begin to taper, the numbers would show we are in a recession.

As soon as that happens, there will be screams to do something.

 

What needs to occur is a recession to wash out the excesses.  But we do not let that happen.

And so we wait....

Tue, 11/05/2013 - 15:13 | 4123595 Grande Tetons
Grande Tetons's picture

Last time I checked, junkies do not live too long. 

The best thing is for no Taper....increase QE and let the patient overdose. 

Tue, 11/05/2013 - 15:11 | 4123614 cougar_w
cougar_w's picture

The Fed cannot print cheap/free energy. They can print/fund warfare, but eventually even wars for resources will run out of steam. The next round of demagoguery will be the justifications for getting our oil away from those haters at any cost.

Tue, 11/05/2013 - 15:11 | 4123617 ronincap
ronincap's picture

Right on Grande Tetons

Tue, 11/05/2013 - 15:12 | 4123619 Dr. Engali
Dr. Engali's picture

The fed will not taper in December, March, or ever. The fed will be increasing QE even moar until one of two things happen. Either the world says no more and starts dumping the FRN enmasse, or the fed owns everything.

Tue, 11/05/2013 - 15:13 | 4123627 NOTaREALmerican
NOTaREALmerican's picture

The Fed can't Taper because "Keynesians" would then have to admit their god has died.

Let us pray:

We must borrow more money,
To stimulate demand,
So that jobs are created,
And prosperity ensues,
Then we pay off our loans (unless we don't have properity or enough jobs in which case keep praying).

Forever and ever, in his holy bearded name, Amen.

Tue, 11/05/2013 - 15:16 | 4123635 Al Huxley
Al Huxley's picture

These guys could keep it simple and just admit reality - the FED can never taper because the only reason anybody else buys ANY bonds is because they FED will always buy them back at a better price.  Pull the FED backstop and

- rates go up

- FED balance sheet goes completely to shit

- Government interest expense goes through the roof

- FED is forced into BLATANT (because apparently the market doesn't find what they're doing now blatant enough) monetization to cover rising interest expense

 

And yet everybody agrees to play the 'will they or won't they' game, as if somehow they're making these decisions based on 'what's best for the economy and the American consumer' (since the concept of citizenship, with it's implication of responsible participation in the affairs of the country is no longer applicable)

Tue, 11/05/2013 - 15:20 | 4123656 Hedgetard55
Hedgetard55's picture

Al,

 

     I see your point about the FED "balance sheet" but in REAL terms they can suffer no losses as their REAL cost basis was zero to buy all those bonds. So, who REALLY bought those bonds?

Tue, 11/05/2013 - 15:32 | 4123698 Al Huxley
Al Huxley's picture

Yes, I know - they don't really suffer from the balance sheet hit, it just looks bad and makes the whole Potemkin village they're trying to maintain less credible to those who aren't quite in the mainstream but still buy the 'FED has a mandate' story.  It's the interest expense and forced, visible, blatant monetization of interest expense that will eventually bring the whole scheme down.

Tue, 11/05/2013 - 15:47 | 4123734 HardlyZero
HardlyZero's picture

The smaller and weaker (cities, states, countries) that can not print will suffer first and bankrupt first (Detroit, Fresno, Greece, Cyprus, ...)

Once bankruptcies are on the mind of investors then interest rates will rise to 'real' levels and then the real economic situation will become apparent.

Its all bread and circuses until real interest rates are obvious.

/waiting

Tue, 11/05/2013 - 15:28 | 4123684 PowerPlayer
PowerPlayer's picture

The Fed is probably more concerned about deflation than inflation at this point in time.  I think the FOMC is more likely to increase QE as opposed to taper anytime soon.  They just need to talk like they could taper at anytime to keep people honest and to stop specualtors from taking excessive risks, but there is no way they taper this year.  

Tue, 11/05/2013 - 15:34 | 4123709 Sleepless Knight
Sleepless Knight's picture

Taper on, Taper off, whatever - Im getting worn out by this lame debate.

Tue, 11/05/2013 - 15:37 | 4123718 polo007
polo007's picture

According to Macquarie Research:

https://app.box.com/s/j0desfvkuqh6bitsvhuz

Could the Fed flip flop?

“Enlargement” could become the new “tapering”

- Our view that tapering will commence in March 2014 has become the consensus and continues to be our base case (50% chance). We place a lower probability (15%) on an earlier taper (Dec/Jan) and a higher probability (25%) it occurs later (April to Sept). While incremental delays could impact near-term asset class performance these would only provide temporary respite from longer-term trends established when expectations for tapering began in early 2013.

- One outcome (to which we assign our final 10% probability) that would result in a more dramatic shift would be a 180 degree turn or flip flop in Fed communication that caused investor anticipation to move from “taper” to “enlargement”. The potential for such a shift is barely being acknowledged (no less considered!), by consensus. This is all the more reason to give it attention in our view. Such a flip flop would have important implications for asset market returns. In particular, it would likely lead to outperformance from emerging market equities and precious metals. Treasury bonds would also benefit.

The Fed would need to doubt the recovery’s sustainability

- Incoming data are an obvious catalyst for a Fed flip flop. The labour market has softened recently (Fig 8, 9), housing momentum has slowed (Fig 10, 11) and inflation is well below target (Fig 12, 13). Despite downgrades in its forecasts (Fig 14), the FOMC remains above consensus (Fig 15). While this evidence may be enough to delay tapering, modest downgrades or data misses likely won’t be enough to change the Fed’s tapering narrative.

- In our view, for such a flip flop to take place, members must become more pessimistic about the recovery’s sustainability. What might cause this? The combination of continued soft data alongside greater than expected fiscal tightening in 2014 is one possibility. It was the worry about the impact from the fiscal cliff, after all, that contributed to the QE3 launch decision in 2013.

And the Tea Party could provide the catalyst

- Consensus expects the Tea Party and other Republicans to take a less hardline approach towards negotiations in 1Q14 after they were punished in public opinion polls as a result of the shutdown. Such a near-term detente in Washington will only become likely should President Obama make concessions. Should this occur, the President may be more willing to sacrifice on near-term spending rather than changes to Obamacare (his legacy) or long-term entitlement programs (resistance from his own party) (see pgs 3 to 5).

- The magnitude required to impact the 2014 growth outlook is not high. Annual spending cuts offsetting just one-third of the long-term debt impact from Obamacare would act as an incremental ~0.4% headwind to growth in 2014 (combined with sequestration already embedded in current law, this would mean fiscal drag of ~0.5 to 1.0% for much of the year) (Fig 7).

Tue, 11/05/2013 - 15:40 | 4123725 q99x2
q99x2's picture

The FED is not going to taper. No but they'll use the idea to ramp the markets.

Why don't they just come out and say that if the worldwide uprising against globalists doesn't stop there'll be martial law in the streets. So we are going to have to ramp the markets to pay for the alphebet soup agencies to fight off the citizens of the United States of America and Europe.

Tue, 11/05/2013 - 15:49 | 4123775 Big Ben
Big Ben's picture

All this taper talk is simply FUD generated by Goldman, Morgan, etc. to allow them to load up on long bonds while everyone else is worried that rates are going to rise.

Yellen has stated that she would rather have inflation above target rather than have unemployment above target. Inflation is running below target and unemployment is way above target. Once installed, she is going to expand QE and buy every long bond that isn't nailed down. Generating tidy profits for the aforementioned Goldman, Morgan, etc.

 

Tue, 11/05/2013 - 15:55 | 4123799 uncle_vito
uncle_vito's picture

Add in the economic millstone of Obozocare on all middle class whether they sign up for ACA or have indivicual policies or, in 2015, have employer policies (which is just about everyone) and folks lose the equivalent of a car payment each month.

Tue, 11/05/2013 - 16:19 | 4123910 Pareto
Pareto's picture

Its pathetic.

Nobody cares about economic performance (employment, jobs, etc.), because everybody knows none of it is any good, or, at least insufficient to justify all time highs in the SnP.  Which really is another way of saying that since it is the FED and ONLY the FED that anybody is paying any attention to, means that the entire market is a sham - like elections now  - which means if you are going to fuck around in this sandbox, recognize it for what it really is - invest accordingly.  So then, when you continue to hear from pundits and politicians about "taper timing", what we should all be saying, and at the same time, is "fuck off with you're bullshit prognostications as if they were market based analyses - as the person spouting them, they are useless, because there is no "market" to even confirm or disprove what you are saying."

 

Its a retarded exercise - futile - and its absurd that anybody even pays attention to it, or worse, pays money to see or hear you say it.

 

"Its a big club, and 99% of us aint fucking in it."

 

End of story. 

Tue, 11/05/2013 - 16:36 | 4123973 New American Re...
New American Revolution's picture

QE is Permanent; it's forever, unless there's a war; then you have to buy into it, and live with it because it's your patriotic (idiotic) duty.  There is a better way.  I recommend Liberty www.electanewcongress.com   Serfs Up America!

Tue, 11/05/2013 - 19:25 | 4124689 RMolineaux
RMolineaux's picture

I believe the supposed reaction of the markets to the beginning of taper has been overstated.  We should keep in mind that the taper is NOT a tightening measure, but rather a reduction of rapid loosening.  No doubt there will be a lot of weeping and gnashing of teeth on the part of those who have used QE 3 to inflate the stock market, obtain ultra-low interest bank loans and padded their own bonus accounts.  But the rest of us will pay no attention and life will go on - perhaps with slightly higher interest rates.  The FED can ameliorate the effect of the taper by discontinuing its program of paying interest on excess reserves, thereby reducing its liabilities concurrently with the expected decrease in the expansion of its assets.

Tue, 11/05/2013 - 22:26 | 4125355 tradewithdave
tradewithdave's picture

Woodford claims there is a zero lower bound. However in the absence of a quantity theory of money or time value of money, technically speaking you can keep splitting the difference and still never reach the bound. If so, then it's not a "bound", but rather a fractal denominator equivalent to the Coastline Paradox ever-increasing in size.

The Fed has moved from a time-based model to a distance-from-the-threshold model while still referring to both as "how long?" As if length as measured in time and length as measured in distance were comparable. You can simply keep splitting the difference while infinitely expanding the supply and never reach the threshold.

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