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Why The Fed Won’t Taper In December

Tyler Durden's picture




 

Submitted by F.F. Wiley of Cyniconomics

Summary

  • To gauge the likelihood of a December taper, we should think through the changes that might occur in the first paragraph of the FOMC’s statement, which is always a brief assessment of the state of the economy.
  • While the committee will surely tweak its language on account of last week’s strong jobs data, we’ll see downgrades in other parts of its assessment, which should include a reference to weaker business investment growth and possibly a renewed warning about rising mortgage rates.
  • The committee should also be concerned about holiday spending after seeing rapid inventory accumulation in Q3 GDP and other indicators.
  • Inventory and spending concerns may not be recognized in the statement, but they’ll add to the case to let the dust settle on the fourth quarter before changing existing policies.
  • We expect the tapering decision to be deferred to the next meeting once again.

Thinking like the Fed

To know your enemy, you must become your enemy  -Sun Tzu

In war, poker, chess and many other endeavors, wise old hands will advise you to think like your opponent. We’ll try a related idea here by seeing if we can think like the members of the Federal Open Market Committee (FOMC). Specifically, we’ll pretend to write part of the statement for the FOMC’s December 17/18 meeting.

We’ll work through the four or five sentences in the statement’s first paragraph that sum up the committee’s thoughts on recent developments. When the FOMC makes a policy change, it’s always linked to these four or five sentences. Here’s what they said in the last statement (for the meeting on October 29/30):

Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

As you may know, there are at least five pieces to this section: employment, household spending, business investment, housing and inflation. In addition, sometimes factors outside the big five become important enough to make a special appearance. For example, every one of the last six statements included a sentence on fiscal restraint.

We’ll look at each area in up to four steps: old language, new information, comparison and new language. Here are the questions we’re trying to answer:

  • Old language: What did the last two statements say? (We’re including the September 18-19 statement because of the surprising decision not to “taper” the Fed’s monthly security purchases and the fact that it was described as a “close call.”)
  • New information: What have we learned since the September non-taper?
  • Comparison: In view of the new information, how does today’s economy compare to the September 18-19 economy?
  • New language: What will December’s statement say?

Once we’ve covered each area, beginning with employment below, we’ll explain why our answers tell us to expect another non-taper.

Employment

Old language (October): “Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated.”

Old language (September): “Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated.”

New information:

  • Non-farm payroll gains averaged 193K in the last three months (September through November), which is well above the three month averages at either of the last two meetings (148K as of September and 143K as of October). The recent figures included two consecutive gains of over 200K: 200K exactly in October and 203K in November. In addition, the August print was revised upward twice, from 169K to 193K to 238K.
  • The household survey tells a different story. The labor force expanded in September while 133K jobs were added, nudging the unemployment rate from 7.3% as of September’s meeting to 7.2% as of October’s meeting. That was a “good” drop in the unemployment rate because it coincided with a growing labor force. Since then, only 83K jobs were added while the labor force shrank by 265K (combining October and November to smooth out government shutdown distortions). Without the labor force shrinkage, the unemployment rate would have held steady at 7.2%. With the shrinkage, it fell to 7.0%. That was a “bad” drop in the unemployment rate because it had nothing to do with new jobs.
  • Employment components of the ISM indices were mixed. The manufacturing index’s employment component reached a 1½ year high in November, while the same component of the non-manufacturing index fell to a 6-month low.

Comparison: Nonfarm payrolls strengthened considerably, but these gains aren’t corroborated by the household survey.

New language: The committee is likely to either restore September’s “shown further improvement” (dropping the qualifier “some” from October’s statement) or upgrade the language even more by mentioning an increased pace of hiring. On the other hand, the household survey’s disturbing trends may warrant an extra qualifier. The part about the unemployment rate remaining “elevated” will appear for the 18th consecutive time.

Household spending

Old language (last 8 meetings): “Household spending advanced.”

New information:

  • The Q3 GDP report showed household spending growth slipping to 1.4% from a 2.0% trend over the past few years (Q1 2011 through Q2 2013). This is the lowest quarterly print since 2009.
  • Spending growth appeared to pick up slightly in October, however, based on Friday’s report showing a 0.3% monthly gain in real personal consumption.
  • Preliminary holiday spending reports are tepid at best.
  • Monthly car sales averaged 15.6K units in the data released after September’s meeting (for September through November), which is down 1.9% from the monthly average of 15.9K in the prior three months.

Comparison: While the data looks weaker than it did at September’s meeting, the holiday season is the most important piece and still uncertain.

New language: There’s a small chance that they’ll downgrade the language to say that the rate of spending growth has slowed. For this to happen, the December 12 retail sales report would need to be weak. Otherwise, expect to see “household spending advanced” once again.

Business investment

Old language (last 7 meetings): “Business fixed investment advanced.”

New information:

  • The Q3 GDP report showed business equipment spending falling slightly (-0.04%). This is only the second negative print since 2009.
  • Not only was the third quarter weak, but fourth quarter equipment spending also got off to a poor start. October’s figure for non-defense durable goods ex-aircraft spending, which is used in GDP calculations, was 1.1% below the third quarter average.
  • Business spending on structures grew at a 13.7% annual rate in Q3, down from the 17.6% Q2 print but still strong. This is the smallest and most volatile piece of business fixed investment, though, as shown by the year-to-date 2013 data, which includes a drop of 25.7% (annualized) in Q1.
  • Like equipment spending, spending on structures is also off to a weak start in the fourth quarter. October’s figure for nonresidential construction spending was 1.1% below the third quarter average.

Comparison: Recent data paints a much weaker picture than at September’s meeting, when the only weak spot was a single month’s data (for July) from the durable goods report.

New language: Expect the new wording to be similar to “growth in business fixed investment has slowed,” which was the language used in December 2012 after the last drop in business equipment spending.

Housing

Old language (October): “The recovery in the housing sector slowed somewhat in recent months.”

Old language (September): “The housing sector has been strengthening but mortgage rates have risen further.”

New information:

  • The Q3 GDP report showed residential construction expanding at a 13% annual rate, the fifth consecutive quarter of double-digit annualized growth.
  • The NAHB Housing Market Index has fallen to 54 from 58 prior to September’s meeting and 55 prior to October’s meeting. The November release is due on December 17.
  • Housing permits averaged 978K in the last three months (August through October), bouncing back from a three month average of 933K as of each of the last two meetings. Almost all of the fluctuation has been in multi-family units.
  • Although the preliminary new home sales release for October was strong at 444K, the last three months averaged only 392K. This is lower than the three month averages at either of the last two meetings (429K as of September and 422K as of October).
  • The NAR’s Pending Home Sales Index has fallen for five consecutive months.
  • 30-year mortgage rates climbed to 4.46% this week, up from 4.10% in the week of October’s meeting and nearly back to the 4.50% of the week of September’s meeting.
  • Housing starts data is conspicuously absent due to the government shutdown, with data for September, October and November due to be released for the first time on December 18.

Comparison: Permits recovered since the last two meetings, but new home sales were disappointing apart from October’s reading. The Housing Market Index and Pending Home Sales Index also weakened. Mortgage rates are rising once again, which will surely get the committee’s attention.

New language: Expect a newly worded housing sentence that retains the cautionary tone of the recent statements. If mortgages rates remain above 4.5%, they’ll probably restore September’s qualifier about rising rates. If rates continue to rise AND the mid-December releases (NAHB index, starts and permits) are weak, the new language should be a clear downgrade from the last two statements.

Fiscal restraint

Old language (last 5 meetings): “Fiscal policy is restraining economic growth.”

New information: The effects of fiscal measures enacted early this year (the tax hike and sequester) will gradually diminish. While new measures could be agreed at any time as budget negotiations continue, fiscal drag isn’t likely to be as severe as it was in the 2013 fiscal year.

New language: The old language could and probably should be softened this month. They could add a qualifier to indicate that the effects are diminishing or eliminate the sentence altogether (less likely).

Inflation

Old language (October and September): “Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”

New information: Core PCE inflation (the FOMC’s preferred measure) fell from 1.2% as of September’s meeting to 1.1% currently.

New language: Same as the old language.

Bottom line

The statement will be upgraded in parts but with a few downgrades mixed in. Overall, it’ll be less sanguine than you might expect if you’ve only been scanning headlines and watching financial television. It’ll reflect disappointing data in areas that haven’t received as much attention as, say, the nonfarm payrolls report, which caused many pundits to forecast a December taper. These more disappointing areas include business investment, mortgage rates and the shrinking labor force.

Based on the balance of upgrades and downgrades, some FOMC members will surely caution against an overreaction to a few months of 200,000+ (barely!) nonfarm payroll gains. They’ll also consider the huge inventory build shown in this year’s GDP reports, which may not be mentioned in the statement but should be part of the discussion. Not only do rising inventories help to explain the consensus outlook for weak Q4 GDP growth, but they also present risks for 2014.

What’s more, it’s hard to judge the fourth quarter without the full picture on holiday spending, which isn’t yet available. The importance of holiday spending makes mid-December an awkward time to form conclusions about the economy’s direction, and that’s especially true this year due to the government shutdown and late Thanksgiving. Some FOMC members will want to wait for the dust to settle on the fourth quarter before making policy changes.

Taken together, these factors suggest another non-taper in December .  If we’re right, the spotlight on January’s meeting – which already features Ben Bernanke’s exit, Janet Yellen’s new role and a new set of voters – will be even brighter.

Note:  The conclusions above describe our assessment of how the Fed will approach its December decision, not our own recommendation.  We’ve offered our own policy perspectives in many other articles, such as here.

 

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Sun, 12/08/2013 - 11:29 | 4226576 Colonel Klink
Colonel Klink's picture

"To think like your enemy".  I have trouble thinking that evil, and the ability to screw my fellow man with ZERO regard.

Guess I'll have to keep dreaming of rope and lamp posts.

Sun, 12/08/2013 - 11:50 | 4226625 Derezzed
Derezzed's picture

Why the Fed won't taper ... Ever.

Let me say it again Ever. As I have said before, in this path, there is no turning back, no limit, and the limit when it comes will be the ultimate physical limit of money so to speak.

We are going all through the end of ruine ! Total oblivion

Sun, 12/08/2013 - 14:05 | 4226876 Stuart
Stuart's picture

Any meaningful taper is off the table unless the Treasury finds a buyer to replace the Fed for its bonds.   The Treasury CANNOT afford a rise in longer term interest rates, period.  That IS the issue here.  The rest is peripheral.  Good thing for the Treasury Japan decided to print as much as they did, when they did and funnel a good portion of that into the treasury market.  Coincidence...think not.  No doubt the BOJ discussed this with the Treasury & the Fed.   They was needed to counter the EU banks repatriating treasury purchases as part of the EU banking refinancings. 

Sun, 12/08/2013 - 14:17 | 4226907 garypaul
garypaul's picture

Occident Mortal's comment at 11:02 below is correct to point out the different nature of the sell-off this time (and how I'm getting screwed on my TBT lol)

But I think he's wrong about tapering soon.

Sun, 12/08/2013 - 16:02 | 4227153 Headbanger
Headbanger's picture

The Occident is right on dude!    But also,  to repeat what I said here numerous times before

THE FEDERAL RESERVE IS NOT THE US GOVERNMENT BUT IS OWNED BY THE MEMBER BANKS!

Who do you think OWNS the Federal Reserve's balance sheet??  The Big Banks!

Mon, 12/09/2013 - 06:47 | 4227855 Occident Mortal
Occident Mortal's picture

Come on people the primary economic indicator for the FOMC is the yield curve.

 

Spread between 2yr and 20yr

 

May….2.24%

Sept…3.11%

Dec….3.33%

 

Spread between 3 yr and 30yr

 

May….2.53%

Sept…2.96%

Dec….3.26%

 

The curve is now circa 25bps steeper than it was in September. Their primary indicator (the yield curve) has significantly improved since September.

They will taper very soon.

Since mid November the yield curve is steeper than it has been at any time since 2011. Financial asset prices are in blue sky territory, corporations are cash rich and banks have excess reserves deposited at the Fed everyone is sitting on a big cushion, and now the yield curve is steep and steepening. All the boxes are ticked.

They will tighten soon. Starting with a glide path for winding down QE. It's just another credit cycle, albeit a big one. It's no different to 2008.

Mon, 12/09/2013 - 03:17 | 4228627 farmboy
farmboy's picture

This is the only valid observation why they will not taper ever. There is no real demand for Treasuries, think of the panic if markets realize that.

Sun, 12/08/2013 - 14:08 | 4226889 Stuart
Stuart's picture

Not in any material way for sure.  Agreed.  But they are engaged in a full bore psychology war to keep the market guessing and keep money moving into the stockmarket as part of that.   Most are invested in the stockmarket, not commodities.  So public confidence is tied much more to stock market.  If it craters, it'll turn ugly.  He who controls the mob controls Rome.  Different city, same logic applies IMHO.

Sun, 12/08/2013 - 16:18 | 4227182 NihilistZero
NihilistZero's picture

This is why I expect Housing Bubble 2.0 to bust before a stock market correction.  The real estate market is affected in real ways when income can't support cap rates on rentals.  The numbers still matter.  In QE stock world all the traditional valuation metrics are out the window.  PE ratios are moot when the liquidity spigot is wide open.

Sun, 12/08/2013 - 17:35 | 4227350 Teddy Tenpole
Teddy Tenpole's picture

 

 

Treasuries get tapered, not MBs ;)

Mon, 12/09/2013 - 05:02 | 4228688 NihilistZero
NihilistZero's picture

Whether the MBS gets tapered is irrelevant to my thesis.  The only mortgages being originated in the bubble markets are going to "greater fools".  If anything the FEDs appetite for MBS will require a lowering of lending standards (which Bernanke lobbied for and is already happening) which will only hasten the bubbles popping.

Sun, 12/08/2013 - 17:46 | 4227010 KickIce
KickIce's picture

Rothschild 101, inflate then deflate.

They're going to pull the rug out at some point,buy the world for a song and then introduce a new currency to satisfy the masses. Unfortunately, by then we will all be renters.

Sun, 12/08/2013 - 21:35 | 4227907 ZH Snob
ZH Snob's picture

OK, let's think like the FED (behind closed doors)

congratulations, boys, our 100 year plan is nearly complete.  our European branch has them all going down like dominoes.  and you know, the funny thing is war after war, depression after depression we keep succeeding in getting them to blame their governments.  these useless eaters are so entirely clueless they still haven't put it together that we run their countries, not their governments.  it's the same thing here but even easier.  we've managed to hypnotize these idiots with television, new phones every week and all kinds of crap they fight over at Walmarts.  by the time we've bought all their assets with the very same paper we print for them and finally pull the plug, once we've bankrupted the entire world, they'll never look our way and we'll be safe and sound.  like usual they'll go after each other, start wars, overthrow goverments, and dontcha know, we'll be right there with the new solution to their apocalyptic mess.  now if you look at this powerpoint here is the plan we will present to them...

Tue, 12/17/2013 - 00:18 | 4228558 All Risk No Reward
All Risk No Reward's picture

They will taper, but the play looks like they will create the environment that forces the taper.

They'll pretend like they are forced to taper.

All you folks that think the people with all the money and all the debt paper are going to hyperinflate while they are in that paper are simply lacking in rudimentary self interested economic incentives when it comes to the dElites.

They are going to break the back of this MOFO, all the while playing the role of the savior... "give me a little more and we'll fix it... promise this time!"

And all my antagonistic friends and family will avoid the h*ll out of me because I made sure their blood would be in their own hands and not out of ignorance.

They control the Fed, they own trillions in dollars and trillions more in debt.

Would you hyperinflate?

What you have been told is government is a bunch of Biggest Finance Capital sycophants falling all over themselves to slob the Biggest Finance Capital nob first in line...  so they don't have to go last.

WHO finances politicians?

WHO promotes politicans?

WHO takes care of politicians with $1,000,000 a year gigs and $200k speaking engagements?

WHO do you think runs this MOFO?

The good news is that the same answer works for any outcome - so being wrong isn't a big deal.

GET DIRECT CONTROL OF THE NECESSITIES OF LIFE AND BUILD A COMMUNITY OF LIKE PEOPLE AROUND THIS IDEA.

Sun, 12/08/2013 - 12:02 | 4226660 Occident Mortal
Occident Mortal's picture

I think they will taper soon.

They have said nothing to suggest the taper has been delayed indefinitely.

Also the recent bond sell off is different to the May sell off, it's the other end of the curve selling off this time. The bond market is responding how they wanted it to this time. It's on.

Sun, 12/08/2013 - 12:38 | 4226715 Ham-bone
Ham-bone's picture

if a taper was seriously coming it would be seen in an equity selloff and a strong bid for treasuries sending treasurys back to sub 2%...the great rotation would be out of stocks and into treasuries. 

Sun, 12/08/2013 - 12:46 | 4226726 Colonel Klink
Colonel Klink's picture

Or the great rotation would be into bitcoin, because we all know what a store of value it is!

/sarc

Sun, 12/08/2013 - 13:10 | 4226740 Harlequin001
Harlequin001's picture

Now come on, no one's that fucking stupid. Are they?

Only central banks do that...

Sun, 12/08/2013 - 12:50 | 4226739 Occident Mortal
Occident Mortal's picture

Why would you expect Treasuries to be bid when the Fed starts tapering?

The Fed buys 75% of all the coupons at the moment. Yet you expect Treasuries to rally once the Fed slows their buying!?

That's just silly.

Sun, 12/08/2013 - 17:58 | 4226753 Ham-bone
Ham-bone's picture

silly or not that is exactly what has happened every time "tapering" took place from QE1, QE2, etc.  "Money" always goes somewhere...and in a equity selloff institutions and large funds have very few options to ride out the slide...someplace to hide out til the equities are through the shit storm of "tapering"...the Fed's buying of bonds is not pushing rates down but the stock market up.  In a depression, Treasury's yield of 2% would be much more appreciated than a retest of S&P 666.

The Fed's buying of all new Treasury issuance and quite a bit of rollover is retiring "an sset class" (likely never to be seen again), barring any new money from going into this class of "investments" while creating new money that is forced into stocks, RE, CRE...Equities record leverage and record highs aren't exactly saying taper is a coming...

Since '00 $9 T in US new public debt created (of $12 T total)...domestic ownership (ex Fed) has remained steady @ $2.5 T...while Fed has increased to own 20% while foreigners increased to own 50%.  Guess what domestic institutions (insurers, pension funds, etc.) hold now...lots and lots of stocks because there is no yield elsewhere. and they must find some means of getting closer to their 5-8% planned returns.  If the Fed says taper it isn't simply a one time cut but effectively a commitment to end QE (to zero)...every holder of stock that can sell would sell to protect massive gains and protect themselves from their incredibly risky (risky ex-Fed purchases) stock exposure...and they would ROTATE to Treasury's.

Sun, 12/08/2013 - 15:06 | 4227022 garypaul
garypaul's picture

"Also the recent bond sell off is different to the May sell off, it's the other end of the curve selling off this time."

TBT is Bullshit!

Mon, 12/09/2013 - 02:38 | 4228586 All Risk No Reward
All Risk No Reward's picture

Negative GDP when factoring out inventory builds and QE isn't enough?

I think they end up tapering, but I doubt they do so now.  If they do, you can bet they are purposefully accelerating the collapse effects on society.

They have to run the market up as high as possible so they can fleece the absolute last Muppet to the greatest extent before they collapse the false narrative foundation of sand.

Sun, 12/08/2013 - 12:33 | 4226709 Jannn
Jannn's picture

China Mainland Gold Import Accelerating

 

http://www.ingoldwetrust.ch/china-mainland-gold-import-accelerating

Sun, 12/08/2013 - 13:06 | 4226765 Wile-E-Coyote
Wile-E-Coyote's picture

"The supreme art of war is to subdue the enemy without fighting.”

Gold is the key.

Sun, 12/08/2013 - 12:38 | 4226717 666
666's picture

Megalomaniac Ben doesn't want the crash to happen during his tenure, so there will be no taper in December. Mr. Yellen will have to make the decision next year, and he/she/it will probably chicken out and just print moar.

Sun, 12/08/2013 - 12:51 | 4226738 ThisIsBob
ThisIsBob's picture

True.  Her will do anything to not leave a failure.  Let it all blow up on Janet's watch.

Sun, 12/08/2013 - 12:57 | 4226747 oak
oak's picture

2014 is election year, therefore, the best taper year would be in 2015, one year or so before obama leaving the office.

Sun, 12/08/2013 - 13:06 | 4226764 Itch
Itch's picture

To know your enemy, you must become your enemy...but we have seen the enemy, the enemy is us...hence, know thy self, and beat the enemy, thy self. 

These rivers run deep.

Sun, 12/08/2013 - 12:13 | 4226578 cossack55
cossack55's picture

Bottom line:

Fuck the FED and the tapir they rode in on

 

Note: The Brazilian Tapir rather favors J. Yellenanke

 

www.en.wikipedia.org/wiki/Tapir

Sun, 12/08/2013 - 11:31 | 4226584 Smegley Wanxalot
Smegley Wanxalot's picture

Think like the Fed:  "Print gooood. No print baaad. . . . . Me print. "

Sun, 12/08/2013 - 11:32 | 4226588 virgilcaine
virgilcaine's picture

No way anyone can estimate what a sociopath will do.

Sun, 12/08/2013 - 11:44 | 4226595 Colonel Klink
Colonel Klink's picture

There can be NO taper without collapsing the eCONomy.  Chuckie Shumer tells them to get to work at the slightest downturn in the eCONomy.  I can only imagine the screaming you'd hear from the politicans if things really started to tank, ala 2008.

The Feral Reserve will continue to make sure it's a slow grind down until the final collapse.  For a clue, just look at Japan.  That's all one needs to know.

The Fed thinks they're bigger than "the market", once again history will rhyme when the market trumps the hubris of men.

Once things pop, 401Ks, mutual funds, pensions, etc and nations will disolve when derivatives are triggered.

Here's just one person's idea of what it may look like, from the movie Rollover circa 1981.

http://www.youtube.com/watch?v=m1aQ-XGWors

It starts getting good about 3 minutes in.

Sun, 12/08/2013 - 12:03 | 4226664 centerline
centerline's picture

That's how I see it at this point.  It will unbelievable... but, absence something really odd happening, they will hold the lid on things through a slow, global grind.

Either it results in outright war - with complete destruction of all savings, pensions, etc. (current global banking system implodes) leading into some new world  -OR- it leads to cascading municipal failures, bail-ins, pension wipe outs, etc. and the US realizes a soviet-style melt down as part of the same global banking system implosion.

Either way, the system is toast... the banks as we know them are toast... the FED is even toast (and with most other central banks around the world).

Sun, 12/08/2013 - 12:13 | 4226681 fonzannoon
fonzannoon's picture

Kito sent this to me. I don't know if ZH ever posted this but if they did not they should post it with a h/t to Kito. This guy makes Nigel look like a wuss.

http://www.youtube.com/watch?v=CBVFpYN0iNo#t=25

Sun, 12/08/2013 - 12:26 | 4226697 centerline
centerline's picture

Thanks.  I will have to switch to my computer that has speakers now.  Judging purely from the comments it looks like a good clip.

 

Sun, 12/08/2013 - 13:23 | 4226789 OneTinSoldier66
OneTinSoldier66's picture

Sweet clip fonzannoon. What he says is exactly the same thing we have going on here. I'm sure it's the same in Japan, etc, etc...

Sun, 12/08/2013 - 13:29 | 4226799 SmallerGovNow2
SmallerGovNow2's picture

Awesome Fonz, thanks...

Sun, 12/08/2013 - 13:44 | 4226828 Tim_
Tim_'s picture

"...as the people get your number, it won't be long before they storm this chamber, and they hang you, and they'll be right!"

We need more lampposts.

Sun, 12/08/2013 - 23:14 | 4228235 PrecipiceWatching
PrecipiceWatching's picture

“It won’t be long before the people storm this chamber and hang you...and they’ll be right!"

 

 

Should be chiseled into the front panel of the speaker's Podium in both chambers of the criminal US Congress.

Not to mention tattooed on the illicit Kenyan's forehead.

Sun, 12/08/2013 - 11:37 | 4226598 GrinandBearit
GrinandBearit's picture

The Fed will NEVER taper.  In fact, they will increase the QE once the market starts to fall apart.

Sun, 12/08/2013 - 11:41 | 4226604 Getting Old Sucks
Getting Old Sucks's picture

Exactly.  They can't ever taper.  So why all the BS about it?  Cut the BS!  Oh wait, that would hurt buying the fucking dip the BS creates.

Sun, 12/08/2013 - 11:59 | 4226648 fonzannoon
fonzannoon's picture

It's articles on here like this that make me concerned that everyone including myself is insane with a possible side of mental retardation. Why is the idea of a taper even discussed? Why do we even comment on it? The only reason the taper is thrown out as a possibility by the  fed is to prevent the S&P from skyrocketing to 5,000 in a disorderly fashion. This is all just to give them cover until they have bought up enough of the bond market to prevent a mutiny. 

Then at the June 2017 meeting Yellen will whip her (actual) balls out in the press conference and yell "HAHA BITCHEZ HOW YOU LIKE ME NOW!".

Sun, 12/08/2013 - 13:30 | 4226798 OneTinSoldier66
OneTinSoldier66's picture

Even if The Fed were to taper, they would still be printing enormous amounts of money up out of thin air. The printing of money up out of thin air will never stop. Any talk of taper has been, and will be, a distraction and sideshow.

 

All articles and discussion should be about "End The Fed".

 

Sun, 12/08/2013 - 14:30 | 4226912 sixsigma cygnus...
sixsigma cygnusatratus's picture

If anything, the Fed will need to increase the print.  There is a built-in decay in the value of each month's print, i.e., this month's $85B does not have the same spending power as last month's or the month's before.

 

OT, I'm starting to believe that Bitcoin IS the Fed's exit plan.

Sun, 12/08/2013 - 14:46 | 4226978 OneTinSoldier66
OneTinSoldier66's picture

Don't know about Bitcoin. But +1 for the first part. The Fed is the definition of decay.

Sun, 12/08/2013 - 11:39 | 4226600 stant
stant's picture

no taber until the market makes them. the stawk market is the bond markets little bitch

Sun, 12/08/2013 - 11:38 | 4226601 nmewn
nmewn's picture

Isn't it odd that the amount created from thin air equals almost perfectly the amount government overspends by?

Its like the eighth circle of hell or sumpin ;-)

Sun, 12/08/2013 - 12:54 | 4226721 CPL
CPL's picture

The central banks having to double down, then quadrupal down, then octorupal down, etc, etc, etc.  Wait until it hits a trillion printed per month.  lol!

Interest on all debt world wide @ sub 1% has surpassed the entire GDP of the entire planet months ago.  Wait until the Jan 2014 'event horizon' of >1% interest achieving it's own velocity...then Feb 2014 when it goes into Exponential rolling debt mode.  Millionaires become paupers.  Then the Billionaires soon after.

Grab some popcorn...

Oh yeah the corrupt Icelandic government was overthrown yesterday by it's population.  No word on guilotines yet.  lol!

Sun, 12/08/2013 - 16:57 | 4227257 nmewn
nmewn's picture

No doubt CPL...zero bound and chained to debt issuance.

Yeah I heard about Iceland.

http://guardianlv.com/2013/12/icelanders-overthrow-government-and-rewrite-constitution-after-banking-fraud-no-word-from-us-media/

Of course with MSM idiots blathering on about every shiny object presented to them, no one else heard about it..lol.

Now they'll have to do a whole week about Mandela.

Sun, 12/08/2013 - 11:41 | 4226605 Seasmoke
Seasmoke's picture

If they were ever going to Taper, this month is their only chance.

Sun, 12/08/2013 - 11:49 | 4226621 kaiserhoff
kaiserhoff's picture

Because Obama.

Sun, 12/08/2013 - 17:38 | 4227353 Teddy Tenpole
Teddy Tenpole's picture

 

 

Have to agree with ya there douche smoker.

Sun, 12/08/2013 - 11:42 | 4226606 LoneStarHog
LoneStarHog's picture

"We’ll try a related idea here by seeing if we can THINK like the members of the Federal Open Market Committee (FOMC)."

Experiment is already doomed to failure since the author makes the erroneous assumption that anyone on the FOMC actually has the mental capabilities to THINK, especially rationally.

Sun, 12/08/2013 - 11:57 | 4226627 Colonel Klink
Colonel Klink's picture

I agree that the experiment was already doomed to failure, since it's a debt based currency with the need to charge interest.  It's a big ponzi and ponzis always fail, as do fiat currencies.  It's just a matter of time.

Where I disagree is that the people of the FOMC/Fed has the mental capability to think.  They KNOW full well what they're doing.  There is NO WAY someone (Bernanke) can be that wrong in their predictions.  Near 100% missing the "guess".  It's lies and misdirection to keep the ponzi going and prevent the collapse in CONfidence in the game.  It's collusion at it's finest.

Have no illusions, they know EXACTLY what they're doing.

Rule NUMBER 1 of the money changers, you can never tell the truth about the nature of the system.

Sun, 12/08/2013 - 14:07 | 4226850 OneTinSoldier66
OneTinSoldier66's picture

Oh they're thinking all right. These guys are educated. They're thinking about how they can continue to pull the world over people's eyes in order to blind them from the truth. So that they, in conjunction with other Central Bankers in the World, can get the world onto their balance sheet and have complete power and control. We are already subjugated to the will of Central Bankers, unless people outright reject them. How Central Banks got their status and privilege I don't know, since all they do, since all they can do, is debase, debauch, and devalue money itself in order to consolidate power wealth unto themselves. They prey upon the tribalistic nature of humans.

 

To them, greed is rational.

 

"Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A." Now I see it's been made legal. -Gordon Gekko

 

"I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?"

Sun, 12/08/2013 - 14:13 | 4226901 fiftybagger
fiftybagger's picture

"We are already subjugated to the will of Central Bankers, unless people outright reject them"

Ever heard of Bitcoin?  Perhaps you should educate yourself about it?

The Bitcoin Channel

Sun, 12/08/2013 - 16:44 | 4227181 OneTinSoldier66
OneTinSoldier66's picture

Yes, I have heard of Bitcoin. I knew about it when it was at like $5 or so. I am somone who is on the fence about it. Most of what I have really learned about is from comments on here. Since I'm on the fence, obviously I'm not educated enough about it, yet.

 

I'd say I'm pretty leery about it though. Perhaps when I 'awoke'(realizing I had been fooled by those in power and in charge) I went to far the other way? Anyway, now instead of a short-term, man-of-the-moment mentality, I try to be more of a long-term thinker. When it comes to Bitcoin I think something like the following...

 

If you took $1,000

The equivalent in Bitcoin

The equivalent in Gold

And they they got buried together

And then someone(s) discovered them 250 years or more from now, which do you think they would care about?

 

No one can really know the answer to the question. And any attempt at an answer, would of course be opinionated.

 

Here's one for you. If the person(s) that found the articles were my descendants, how would they unlock the Bitcoin?

 

Here's a little story that I read about, that I will paraphrase from memory. There were some folks in Poland that knew their grandparents had some wealth in the form of money that they had stashed away, before they had passed away. They didn't know where it had been hidden, but they knew it was around somewhere. They eventually found hidden inside a wall in the house. When they opened the box they discovered that it was paper money(currency) that had been in use in, IIRC, the 1920's. But the currency was no longer in use and therefore was absolutely worthless. What if, instead, the box had contained Gold?

 

There a number of things I like about Bitcoin. As it's been said, so far, no one is being forced to use it. Choice, I like that. I also like open-source. I have been a Linux user for years, and contribute money(if there is such a thing) here and there to it. How could I question whether there is such a thing as money? I saw someone once say, "Now that I've had Quantitative Easing explained to me I believe I understand what it is, but I can no longer explain what money is." Sounds about right to me.

 

The best way I can think to put it is, when it comes to money, I would like to see a type of money that allows a person to be able to have control of their own destiny. Think, Neo, from The Matrix. He didn't put much stock in fate. It's why I don't believe in money being printed up out of thin air. That makes me feel like I am not in control of my own destiny, but instead I'm being controlled by some bankers through the use of force, coercion, fraud, because they're, "richer than me". But I know they are not richer than me if they're printing out of thin air. This has caused me to be quite angry for quite some time now. With that said, someone has to be in control of something, somewhere. Money. What is it? The best invention man ever came up with to resolve humans time preference and consequence of wants? Or is it a curse? What is "free competition in currency"? Is it, when it actually comes down to it, barter under a different name? Is barter really the ultimate form of money in a world of tribalism? I wish I had all the answers and could solve all the worlds problems.

 

I could go into a whole slew of controversial and philosophical things that I think about and question regarding money, gold, the environment, tribalism, etc. You know, the human condition.

 

Socrates said, "The one thing I know for certain is that I know nothing at all." I also heard something else recently that I rather liked, and that is, "there is something that we all know, our own experiences."

Sun, 12/08/2013 - 11:46 | 4226618 Rimon
Rimon's picture

Taper is very much on the table.. You have to look at the data in relative terms not absolute.. September taper was comign as of june meeting and the main reasons 

it didn't happen were a) dramatic tightening in finanical conditions ( front end sell off ), b) sharp slowdown in payrolls and b) looming October fiscal fight..

All 3 have been resolved: conditions eased, payrolls back to trend we saw in june when hte fed was ready and willing and the heavy lifting in fiscal fight has bee largely

resolved without impact on the economy.. All these put taper very much back on

Sun, 12/08/2013 - 11:53 | 4226632 Colonel Klink
Colonel Klink's picture

RIIIIIGHT!  Let's see how that goes.

Yes I junked you for your short sightedness and belief in the Fed.

Sun, 12/08/2013 - 13:33 | 4226809 RaceToTheBottom
RaceToTheBottom's picture

Interesting, if they do taper shortly, what do you think will happen if/when things get markedly worse?

They will have to reintroduce some form of QE or war.  War they will put off for a while so what do you think will happen when the re-introduce QE at a larger level than now?

People will begin to get a little bit smarter, maybe calling into question the whole strategy.  Then things get really ugly and accelerate...

Sun, 12/08/2013 - 15:45 | 4227113 TWSceptic
TWSceptic's picture

Oh how cute you actually believe the excuses the fed makes are real conditions.

Sun, 12/08/2013 - 17:47 | 4227371 Teddy Tenpole
Teddy Tenpole's picture

 

 

 

Agreed, also lets the Bernank feel like he's handing Old Yellen a clean sheet -- except that it's a 3 bowl coiler.  Tapering and forcing the decision to cut spending back on Congress likely makes the Chinese, Saudis, and pensions feel better about their collateral.  Welcome to Banana Republic USA, they own us and now they're going to run the country like a utility.

It's growth, true prosperity, capitalism, and freedom that are about to be exchanged for the sake of 'the full faith and credit' -- it's disgusting. 

Sun, 12/08/2013 - 11:50 | 4226629 DebtSlaveZombie
DebtSlaveZombie's picture

Why can't they just start unwinding without announcing it at the FOMC meeting?  I mean, is there a way to just stop buying MBS and not spook the market by making an announcement?

Sun, 12/08/2013 - 12:04 | 4226665 auric1234
auric1234's picture

If they don't buy the crap, who will? There is no market anymore.

 

Sun, 12/08/2013 - 12:47 | 4226713 kaiserhoff
kaiserhoff's picture

when is now.  market is how much.

What drives us all crazy is that once you mess up incentives and price discovery, all the normal reference points are suspect.

The short bus crowd at the Fed can't know what they are doing because:

  A - They are idiots

  B - They have destroyed the information content of their own data

Sun, 12/08/2013 - 13:22 | 4226780 quasimodo
quasimodo's picture

What about China? I am quite postive they still accumulate.

(gold)

 

/sarc

Sun, 12/08/2013 - 12:23 | 4226694 disabledvet
disabledvet's picture

see comment below. the Fed has already tapered...simply by saying "taper" this summer they shot their whole communication strategy to hell. Now they're stuck with a binary outcome of either "do it" (back up words with deeds) or "rollback" (they screwed up, full reverse.) I don't thinkit matters either way at this point. the market has now priced in a taper...so it can be done and more likly than not not be a big deal. it would be funny if they went right back to "ye olde standby" just to see if they could flatten that curve on more time and make that town sweat. it's not like the Government has done the popular "things" that's fer sure. No Syria, no ACA, ditching Japan, no more visits to Karzai the Corrupt, etc. We shall see.

Sun, 12/08/2013 - 13:06 | 4226758 Element
Element's picture

 

 

"Why can't they just start unwinding without announcing it at the FOMC meeting?  I mean, is there a way to just stop buying MBS and not spook the market by making an announcement?"

 

According to Jim Willie, no. Look up his early Oct two-part interview on the TF Metals site.

Sun, 12/08/2013 - 11:51 | 4226630 chemystical
chemystical's picture

"We’ll try a related idea here by seeing if we can think like the members of the Federal Open Market Committee (FOMC)"

Tried it, but "Hail Satan" and "Fuck the goyem" are incongruent with my beliefs.

Sun, 12/08/2013 - 11:53 | 4226635 kchrisc
kchrisc's picture

FOMC's dilemma: Keep stealing or let the their past thefts become known?

They'll choose "keep stealing."

"Got guillotine?"

Sun, 12/08/2013 - 12:00 | 4226640 Rathmullan
Rathmullan's picture

Agreed, no taper in december. And though the fed is handing $3 billion per day to stupid, lazy and greedy bank execs, it wouldn't want to look like scrooge to the lower class -which it is screwing with inflation and financial repression daily who are clueless as to this travesty and the magnitude of the inhumane abuse being "thumped" upon them by the politicalelite. But the fed will taper in january on the cowardly logic that the blaim from any fallout can be directed to its recently departed chairman, while setting the new chairman up as "good cop".

Sun, 12/08/2013 - 12:01 | 4226656 Colonel Klink
Colonel Klink's picture

I believe that Yellen will just step on the gas harder once the engine starts sputtering.  Two short months will tell us who's wrong and who's right.

Even as the engine starts to overheat she'll keep going, only to be T-boned by a black swan.

Sun, 12/08/2013 - 12:00 | 4226647 razorthin
razorthin's picture

I suspect that the unemployment rate metric will soon be calculated like in the days of old.  Maintaining the fiat pump is much more important than the illusory perceptual boost from current fraudulent number.  They know that the world is on to them anyway.

No taper.  Ever.

Sun, 12/08/2013 - 15:26 | 4227067 Kiwi Pete
Kiwi Pete's picture

Yes, Obama won fair and square so no need to lie about the unemployment rate now. Let it rise and print to the mooon!

Sun, 12/08/2013 - 12:00 | 4226653 auric1234
auric1234's picture

Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated. Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

These central planning morons are so fucking smart, they're supposed to know what everything should be like. "Unemployment is too high, let's lower it". "Household spending is getting better". "credit expansion is below our target".

How the fuck are they supposed to know if I should work or not, if I should spend or not, if I should get into debt? I WILL DO WHATEVER THE FUCK I LIKE. I'm a grown-up, I can take decisions and deal with the consequences.

They will be put back in their place, no doubt.

 

Sun, 12/08/2013 - 12:01 | 4226662 DebtSlaveZombie
DebtSlaveZombie's picture

Question 2... Why would they ever have to reduce their balance sheet?  They don't need to off load 4 trilly in bonds and securities into the open market.  Just hold em until maturity right?  And why not keep buying at 85 billion a month or more?  I know we all feared massive inflation but that may not happen for years... I'm curious what fund managers are thinking when they watch the S&P outperform them year after year and they realize, until this stops, we have no investment ideas that can beat the market.  

Sun, 12/08/2013 - 12:07 | 4226673 auric1234
auric1234's picture

I know we all feared massive inflation but that may not happen for years...

You're aware that hyperinflation is started by deflation, right? It happens during a credit contraction, not a credit expansion.

 

Sun, 12/08/2013 - 12:04 | 4226668 Hedgetard55
Hedgetard55's picture

No taper because the boyz want those huge bonuses they have "earned" this year. Simple.

Sun, 12/08/2013 - 17:50 | 4227377 Teddy Tenpole
Teddy Tenpole's picture

 

 

 

Dude, the ES will sell off in a knee jerk for maybe 20 minutes, tops!  The algos are set for new highs and short position eviseration.  Know your enemy Douches.

Sun, 12/08/2013 - 12:10 | 4226675 Pairadimes
Pairadimes's picture

The great irony in all of this is that should the Fed begin to slow down the rate at which it is stealing from productive citizens (a.k.a., begin to taper), the markets will fold up like an old card table, taking what is left of our ersatz economy with it. The Fed will be blamed, and if the crash is as bad as I expect it to be, the Fed's very existence will be threatened. All because they began to reduce the scale of fraud committed against America.

This is why taper will never happen. In our idiocracy, the Fed is actually safer stealing more from us.

Sun, 12/08/2013 - 12:14 | 4226684 Colonel Klink
Colonel Klink's picture

And the worst part about it is our elected "representatives" have sold us out for their own gain when they're supposed to be protecting the citizens.

Sun, 12/08/2013 - 12:49 | 4226732 Element
Element's picture

haha! ... fantastic summary

Sun, 12/08/2013 - 12:22 | 4226692 Miss Expectations
Miss Expectations's picture

(39) Jesus said: The Pharisees and the scribes have taken the keys of knowledge (and) have hidden them. They did not go in, and those who wished to go in they did not allow. But you, be wise as serpents and innocent as doves.

Gospel of Thomas

 

Sun, 12/08/2013 - 12:26 | 4226699 Colonel Klink
Colonel Klink's picture

Does that come from the big story book?

Mon, 12/09/2013 - 00:11 | 4228352 Colonel Klink
Colonel Klink's picture

Religion takes faith as does fiat currency.  The above proves how gullible people are.

Once upon a time....

Sun, 12/08/2013 - 17:42 | 4227363 Hongcha
Hongcha's picture

Matthew 10:16 (KJV):

Behold, I send you forth as sheep in the midst of wolves: be ye therefore wise as serpents, and harmless as doves.

Sun, 12/08/2013 - 12:29 | 4226703 the grateful un...
the grateful unemployed's picture

the Fed has confused the stock market with the economy, as the market goes down the amount of QE or QE equivalents will go up. its that simple

Sun, 12/08/2013 - 12:33 | 4226706 Hayabusa
Hayabusa's picture

As long as QE benefits those at the top with corporate earnings, bonuses, hedge funds, etc., and screws those in the middle and bottom classes it will continue.  Aside from that, the plan is to wipe out the middle class and put the 99% all in the same "fiscal boat"... that way when SHTF and "the new plan to save us all" is trotted out it will be perceived as less distasteful by the moneyless masses... ask yourself what better way to "set up the 99%" than to rob them through currency debasement, (publicizsing losses to the general population, allowing corporations to shelter their earnings from taxes, etc.) then when you eventually have 99% of the population penniless, well big money and their bought and paid for cronies in Washington can trot out "plan B" and increase the chances of public support for it.  This is no accident... large corporations are hoarding cash, white collar/corporate crime is increasing, sheltering coporate earnings in other countries against Federal taxes, using the middle class's earnings to support the lower class's entitlement programs until they are both in the same financial category, etc.  They need to make us all the same financially so that when they apply the same plan to what once was a hetrogenous group to the now homogenious group they created through policy - increasing the probability it will be accepted by the 99% who are now in the same financial boat through careful engineering of the financial system and those in it who have no power to influence government policy decisions.

Sun, 12/08/2013 - 12:58 | 4226748 Spastica Rex
Spastica Rex's picture

Why is it always a 99/1 split? I think it's going to be more like 80/20. Our global royalty needs a gentry for support.

Sun, 12/08/2013 - 13:07 | 4226761 falak pema
falak pema's picture

damn right, most promising job profile in France : Butlers, maids and Jeeves; and its well paid.

SO many rich who need their dog walked their cat fed and their old mothers bed cleaned.

The world is now heading Downton.

Its not tapering its flooding at the gates. 

Sun, 12/08/2013 - 12:43 | 4226724 maskone909
maskone909's picture

Why do you think they are buying mbs and treasuries in the first place? What are mbs? Why do they have to buy them? Mbs is a representation of the backbone of middleclass. This is home ownership. The fact that there is no market for this crap and the fed has to keep buying in unprecedented fashion should tell us all something. The only question is when does it end? Will the currency blow up before or after the fed has monetized every last treasury and mbs?

Sun, 12/08/2013 - 13:12 | 4226770 Cthonic
Cthonic's picture

They have to keep buying it up so the TBTF can continue pretending to be solvent/profitable.

Sun, 12/08/2013 - 13:02 | 4226755 Bohm Squad
Bohm Squad's picture

In poker, all you've got to do is ask, "What does my opponent want me to do?" 

...Then do the opposite.

Sun, 12/08/2013 - 13:04 | 4226759 RaceToTheBottom
RaceToTheBottom's picture

Further proof that the FED could be replaced by an Excel spreadsheet.

Sun, 12/08/2013 - 13:11 | 4226768 fijisailor
fijisailor's picture

Talk of tapering is nothing more than market manipulation that will work until it doesn't.  Real tapering can never happen.  It's a simple math exercise.

Sun, 12/08/2013 - 13:27 | 4226776 Teddy Tenpole
Teddy Tenpole's picture

 

 

Taper is coming.  The Fed's enemy is a robust economy which is why they are comfortable getting long every Treasury issued.  Look at Japan for the same 10 year stretch.  look at the demographics of this country.  It's party fuckin' over -- centrally directed large corporations cooperate to keep the economy at a measured pace.

The Fed is dictating, ie: bullying with the big stack, so they could give a fuck about what all the fish are thinking/ doing.  OUR enemy is this borg.  It wants you to be scared, it wants all you Boomers huddled under your desks... don't you douchebags get it?

This ZH inspired no-taper is a perfect backdrop for the Fed to taper into -- Old Yellen knows that the shorts are calling another top.  If you are gaming the Fed right right now I'd say they want to buy their Treasuries at lower prices so a nice little taper is perfect.

We all know Congress will be easily blamed in the New Year as the mainstream media starts warning of another cliff. 

The interesting dynamic in my view is how China has reloaded with a big stack of chips at the table.  I wonder how long the Saudis will put up with their deteriorating US bond portfolio too?  Fortress America looks like it is ready to take the paper back with this new found concept of 'energy near self sufficiency' and LNG exports starting next year.

In other words,let rates move back up to a buyer's price.  Balance of trade surplus is coming back folks.  Certainly be cautious about valuations and timing but it is too early to be a full on Doomer Douche.  Deficit coming down is great cover to taper.

I say taper is how the next hand is played so keep the pot small if you are taking on the big stack as a short. 

 

Sun, 12/08/2013 - 17:30 | 4227336 Escapedgoat
Escapedgoat's picture
 " I wonder how long the Saudis will put up with their deteriorating US bond portfolio too?"

 

Maybe They will buy some more War Toys (for that little job going on in Syria).  If they do not, all that confetti is going to be useless, without parades.

Either way, the MIC or the Banksters, are going to benefit.

Sun, 12/08/2013 - 13:22 | 4226788 evernewecon
evernewecon's picture

 

Stunning, how some people will

read the headline above but

say recovery simultaneously.

Sun, 12/08/2013 - 13:26 | 4226794 RaceToTheBottom
RaceToTheBottom's picture

Given the choice between deflation and inflation, they will always chose inflation. 

Printing will increase from here.  It might be obfuscated in some way, but the FED balance sheet will increase from here.

We haven't seen anything yet.

Sun, 12/08/2013 - 13:39 | 4226821 Teddy Tenpole
Teddy Tenpole's picture

 

 

The Fed doesn't want inflation when they own all the bonds!  That's the beauty of the con.  Bankers only care about the collateral, if you want to grow/ be in control of the capital allocation you have to pay them back.  This is what is so sickening...  those cunts are buying us!  The banks are the ones who should have gone bankrupt!!!

Like Ayn Rand said, this whole concept of socialism based on the collective taking care of the less fortunate is artificial/ a con. 

Read about what our Founding Fathers were guarding against.

 

Sun, 12/08/2013 - 13:42 | 4226824 RaceToTheBottom
RaceToTheBottom's picture

Thanks for your reply.  We are living in more interesting times than I care to sometimes.

Sun, 12/08/2013 - 13:48 | 4226835 moneybots
moneybots's picture

"Given the choice between deflation and inflation, they will always chose inflation."

 

The problem is that QE is deflationary.

Sun, 12/08/2013 - 14:09 | 4226893 Alpha Monkey
Alpha Monkey's picture

Depends on where your looking for inflation at, and who you are QEing. 

Sun, 12/08/2013 - 16:19 | 4227179 AynRandFan
AynRandFan's picture

I really didn't buy the argument that QE could be deflationary until I read Mauldin's recent screed.  Seems believable, at least in the short term, due to the effect of pushing business into the financial markets instead of promoting cap ex.  Ultimately though, I would think QE will be inflationary, but I guess that depends on an actual recovery in the productive sectors of the economy.

Hell, I used to think Japan would trigger the big financial tsunami, but that was when I used to believe anything mattered in the financial world other than the Fed.

Sun, 12/08/2013 - 18:20 | 4227454 Teddy Tenpole
Teddy Tenpole's picture

 

 

Dr. Greenspan, I knew Ayn Rand, and you’re no Objectivist.

All you gotta know is that the Fed IS THE ANTITHESIS OF AYN RAND'S PHILOSOPHY.  Whenever I use the word Fascisim everybody in the room jumps.  I used to believe in this country too.  Actually, I still do however we're being taken over.  Don't fight the Fed is an incredible slogan when I sit and think about it.

It's a creeping and silent takeover that is now seemingly accelerating. 

The bankers are like Nazi officers enjoying all the perks while carrying out their orders.  The laws are being rewritten and the constitution already trashed.  You tell me what's next?

 

 

Mon, 12/09/2013 - 09:12 | 4228838 AynRandFan
AynRandFan's picture

What's next is we turn into France.

The Fed is not the antithesis of Objectivism, it is, however, likely to be the framework for an authoritarian government she predicted would replace the altruistic bullsit we have now.

Sun, 12/08/2013 - 18:29 | 4227474 Teddy Tenpole
Teddy Tenpole's picture

 

 

 

It will be interesting to see where this comes out in the corporate earnings 'wash'.  On that note, this is likely the point in the 'new normal' where monopolies are pushed through as pricing power is lost en masse.  P/E could go parabolic!

Sun, 12/08/2013 - 13:45 | 4226831 moneybots
moneybots's picture

Taper, No Taper.  Taper, No Taper.  The game continues.

 

Today's contributor is No taper.  On the heels of Taper sooner than expected.  When does the next Taper Never story appear, followed by Taper for sure in March, followed by No Taper in March, followed by they're really going Taper this time?

Sun, 12/08/2013 - 13:48 | 4226837 dragoneyes74
dragoneyes74's picture

There's three ways the stock market could top on December 18th:

1.  If they taper.

2.  If they don't taper, but Bernanke says the wrong things and the spike up meets a wall of sellers looking to sell into strength and it sets off an obvious scramble for the exits that creates the textbook topping stick after a year long trend up.  

3.  If the Yen, which currently has a record COT Commercial long/Large Spec short positioning, reverses in the same kind of way: poking to new lows that meets a wall of buyers and closes in a hammer.  (Meaning, the Commercials, with much more buying power, protecting their position, could cause the carry unwind.) 

While it may seem unlikely that Bernanke would taper in his last meeting, I think it's more unlikely that the Fed would want Yellen to set a tone of tapering in either of her first couple press conferences.  So if they have any intention of tapering in the next six months, it might happen now.  And I understand the reasons people say the Fed will never taper, but that implies they know what they're doing and are lying because they're so desperate, and Bernanke, to me, looks more like a guy who believes in what he's doing and is learning the lesson of having your ideals crushed by reality. 

I heard Bernanke express concern about extracting too much collateral from the system in June.  I believe he wanted to taper in September but got talked out of it due to the political mess that was sure to happen in Oct.  But the children in Washington totally screwed him by kicking the can only a few months.  Now he's in the same spot.  His original QE programs both had fixed amounts and set time limits.  It was only after it didn't work like he thought it would that he relented to the idea of open-ended QE.  So, whatever the calculation behind those set limits, we've now exceeded both in time and quantity.  I've heard him express concerns about building too much leverage in the system.  The deficits in Washington at the moment are shrinking, making the Fed's footprints in the market more amplified.  Even though he might not realize the Fed's responsibility in creating the previous two bubbles, I'm sure he must have some doubts about creating a third one, especially with stocks at these levels.  Bernanke would love to shake the leverage tree just enough to slow down the mounting bubble, but not enough to cause a collapse.  And I think he still believes it's the stock of bonds on the sheet that matters more than the flow, which will one day lead to some fascinating perplexment at the Fed.  Whether that's now is anyone's guess.

There are numerous reasons why the Fed might taper, and just as many why they won't.  I have no idea what they'll do, but if any of the above three conditions happen, the trades should be pretty straightforward: short bonds, long dollar, short equities, long Yen, short gold and silver.   

The ones I'm most focused on are gold, silver, and the Yen.  The extreme positioning behind the Yen almost never works out for the Specs, however, when it does it leads to insane moves like silver in 2011 because it forces the commercials to keep covering as they lose control of the market.  New lows in the Yen that don't reverse, combined with a no taper, is a powerful combination to watch for.  However, a strong reversal likely unwinds the carry trade and tops equities.  There's no need to have a strong opinion ahead of time.  It's just a bunch of "if then" scenarios. 

Gold and silver could not have a more important moment coming up either.  Same story.  If they poke to new lows and don't meet a wall of buying that reverses and closes at the top of the stick, forming a hammer, they are done.  Like $9 silver coming-to-a-theater-near-you done.  New lows that flop around like a dying fish, combined with a taper, is deadly.  However, new lows with a textbook reversal, combined with no taper, is just as deadly to the upside.  

Whether the breakthroughs all happen on Bernanke day is yet to be seen.  It would be ideal, but the potential for really obvious "sure thing" trades doesn't come along very often.  I don't know what's going to happen, but it's high alert time for sure.  

If this colors my viewpoint, I'm flat in equities and plan to stay that way until FOMC, I got stopped out of my little Euro short on Draghi day, I have half my gold and Yen short left and will ride those into new lows if they happen.  I won't be surprised if gold makes it uncomfortable, though.  If they do, I will add.  I just find it hard to believe gold came all the way back down here and isn't going to run the stops beneath the June lows.  

Sun, 12/08/2013 - 21:15 | 4227926 Seeking Aphids
Seeking Aphids's picture

Interesting analysis.....my view is that B wants to taper at least minimally to show that he has been making progress and to end his tenure on a 'high note' (in the sense that tapering equals succes of QE....which it doesn't imhho). To offset the minimal taper ($10-15B) he will also bring in a negative interest rate for overnight excess reserves held by banks. This should (in the Fed's mind) keep the market happy and help force the banks to lend more. In reality nothing much will change...still huge unemployment and record debt so the trend in the market has to be downwards with the realisation that the trend from the Fed will be less intervention. Interest rates jump (they are being held down artificially like a ball held underwater) and things begin to unwind (house sales drop, etc.) forcing fiscal action in the form a of new infrastructure program from congress........all pretty useless, however, as all the good long-term jobs have gone and won't be coming back soon. Infrastructure spending runs out and all that is left is austerity and more austerity......economy winds down and Americans become increasingly poor. Can this scenario be changed somehow? What could be done to avoid this future? How about a New Deal which would reduce personal taxes and require employers to raise salaries in exchange for tax breaks? Government spending would have to be cut....not sure how. Doesn't sound too realistic, does it? Ok back to Door #1 then....happy austerity! (Or if there are any other scenarios out there please share....)

Sun, 12/08/2013 - 13:57 | 4226860 Eric L. Prentis
Eric L. Prentis's picture

If the Fed does not taper in December—that is tantamount to the Fed admitting the 2008 credit crisis is ongoing—and they have failed.

Sun, 12/08/2013 - 14:11 | 4226891 OneTinSoldier66
OneTinSoldier66's picture

The fact that the Fed is printing is proof that the Financial Crisis of 2008 is ongoing. The Fed is nothing but a failure.

 

fixed

Sun, 12/08/2013 - 16:16 | 4227171 lotsoffun
lotsoffun's picture

so what?  can you print money?

Sun, 12/08/2013 - 14:00 | 4226873 moneybots
moneybots's picture

"Old language (last 5 meetings): “Fiscal policy is restraining economic growth.”

 

Fiscal policy is not restraining growth.  The federal budget should be balanced.  Deficits are goosing economic growth, at a cost of future growth because of growing debt.

Sun, 12/08/2013 - 14:20 | 4226911 blindman
blindman's picture

815 The Jesus We Changed
http://www.youtube.com/watch?v=sV6p-5-ai_w
.
Genesis 32:30 - "And Jacob called the name of the place Peniel..."
http://www.youtube.com/watch?v=9WUGTIE8tqU
.

Sun, 12/08/2013 - 14:33 | 4226947 blindman
blindman's picture

speaking of mass hallucination ....
482 Strange stories for the mind
http://www.youtube.com/watch?v=aePD4wEynKA

Sun, 12/08/2013 - 15:02 | 4227014 BullyBearish
BullyBearish's picture

The actual Taper is an illusion, a tool, a trial balloon. 

It's the TAPER TALK that matters and enables the FED to have its cake and eat it too:

since TAPER TALK increases interest rates while preserving a rising stock market,

why would they ever actually Taper until it doesn't matter anymore?

Sun, 12/08/2013 - 15:42 | 4227107 AurorusBorealus
AurorusBorealus's picture

The objective is to think like your enemy, not write some silly report for general consumption like your enemy.  Let us actually think like the Fed... household income is crumbling and there are a lot of mortgages outstanding rolled up in these MBSes, so we need to keep taking them off the books of the big financial institutions in case the whole market goes bellow up again, so we will not be cutting back on MBS purchases.  Our friends on Wall Street aren´t particularly fond of us buying up all the collateral for the Shadow banking system, but then again, with interest rates on treasuries in the toilet, and they have to stay in the toilet or the debt problem of the U.S. government spirals out of control rapidly, what choice do we really have but the print the money to finance at least half the U.S. debt?  Our friends on Wall Street take solace in the flow and the cash flow they gain from our opaque system of issuing them the bonds first from the Treasury and then buying them back, so they get their cut, and they will continue to support us.  So we cannot reduce our treasury purchases... unless, possibly, we offest any cut in treasury purchases with a new program to buy municipal bonds... there a are a lot of potentially risky munis out there, some of them on the books of our friends... hmmm... a pilot program that promises to begin a taper of treasuries at some future date while we begin purchasing munis today...

Sun, 12/08/2013 - 16:13 | 4227168 AynRandFan
AynRandFan's picture

Remember when people used to talk about "moral hazard"?  Now, it's just a joke.

When the Fed slows down buying junk paper, it will speed up taking junk paper as collateral.  No net change.

Sun, 12/08/2013 - 16:33 | 4227216 shutdown
shutdown's picture

They'll never taper.  Drug addicts usually don't want to quit until "tomorrow."

Sun, 12/08/2013 - 17:56 | 4227395 Teddy Tenpole
Teddy Tenpole's picture

 

The Fed isn't the addict, the Baby Boom has been turned into the addict.  Maybe watch Clockwork Orange and post again later tonight?

Sun, 12/08/2013 - 17:55 | 4227388 TrustWho
TrustWho's picture

Excellent analysis, but failed to address June 19th Bernanke statement that drove taper talk for Seprember. The Honorable Federal Reserve Chairman, Ben Bernanke stated in the June 19th, 2013 press conference: "...when asset purchases ultimately come to an end the unemployment rate would likely be in the vicinity of 7%" 

We are about to witness the problem with Fed TRANSPARENCY..... Well, here we are at 7.0% unemployment rate. The Fed is still executing the QE program at the maximum rate, to date, of $85 billion per month. The Fed should have reduced QE in September. The Fed is scared to death about tapering consequencies, the Fed is composed of PhD COWARDS, so how will they lie next or will they be more focused on credibility of transparency?

Sun, 12/08/2013 - 18:18 | 4227450 yogibear
yogibear's picture

The Fed will not taper until the US dollar crashes and free-falls. This is not news.

Everyone knows taper-talk is BS.

Sun, 12/08/2013 - 23:00 | 4228196 MagicMoney
MagicMoney's picture

I have no idea why people in the media believe that a taper is on schedule when the fed never gave out a schedule. Taper is data dependent on the state of the economy, even then if data appears to be rosy on multiple fronts, I don't think they will taper without any significant ramifications, and remove the QE program completely. The Fed removed the risk from the bond market, there is always a buyer, and the low yields on bonds are a reflection of the removal of risk as the ultimate buyer of bonds with printed money. I believe there is no way they will taper at all. If so, it wouldn't be significant, nor long lasting. Bonds, like the stock market are betting on the Fed's stimulus. Bonds are extremely sensitive to taper, just look at taper talk for evidence to believe in this tendency.

 

I have no doubts if the Fed does taper, which I think won't happen, (I could be wrong), it would be called a policy mistake by central bank voodoo preachers, and the next central banker years from now looking at Bernanke, or maybe Yellen will say, "money supply was cut off, that's what cause the depression". Heh..... Ironically this is Bernanke's conclusion of The Great Depression starting in 1929.  If anything, I believe the Fed is simply talking about taper as an "eventual exit strategy" sometime in the future, if it's even possible at all. I don't understand why folks are betting on taper, when the language is not even there. "Some" good news is not enough to justify taper. I imagine the Fed to stick around, and feel it out longer before deciding any significant policy changes regarding withdrawl of liquidity.

Mon, 12/09/2013 - 06:25 | 4228719 Debugas
Debugas's picture

the Fed wants to push more credit into the system to get it going but the households and businesses are pessimistic about the future and will continue to refuse borrowing even at low interest (you have to repay the credit even if you can borrow at zero interest)

Mon, 12/09/2013 - 10:47 | 4229015 d edwards
d edwards's picture

Old language=OldSpeak

 

New language=NewSpeak

 

2+2=5 Fed monetary plan

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