"Twas The Night Before Taper" - Deutsche's Joe LaVorgna Sees A $10 Billion Taper Shadow Tomorrow

Tyler Durden's picture

There seem to be two camps at Deutsche Bank these days: one, lead by the observant and somewhat contrarian Jim Reid, who recently asked the all important question about 2014 ("what if there is a recession?"), who accurately observed that something "structurally changed" since the great financial crisis (pretty clear what), and who even dared to suggest that the Fed will never taper, especially with the economy so late in the cycle already. And then there is Joe LaVorgna, best known for having a losing track record to Groundhog Phil. It appears that this morning Joey emerged from his lair deep inside 60 Wall, sniffed the cold air, and saw the shadow of a $10 billion taper, which is what he predicts the Fed will do tomorrow.

LaVorgna's full winter weather forecast:

The FOMC statement will be released at 2PM EST along with updated real GDP, unemployment, inflation and fed funds forecasts. The Chairman’s press conference will commence shortly thereafter. We are looking for a $10 billion Treasuries only taper—we have been projecting this since the much stronger-than-expected October employment data (reported on November 8), which was subsequently matched by a similarly strong November employment report. Current quarter growth prospects continue to brighten with second half output poised to average over 3%. Moreover, the budget sequester was loosened, as we also had anticipated, so there is little reason for the Fed to delay tapering, in our view. The fact that the 10-year Treasury yield is at nearly the same level as it was right before the September FOMC, while the timing of the initial rate hike was pushed out at least six months from early 2015 to late 2015, tells us that the financial markets are indeed expecting a taper. There is now much less concern on behalf of monetary policymakers that a taper will engender a further tightening in financial market conditions. Indeed, since the September non-taper, equity prices are higher and credit spreads are tighter.


Nonetheless, the Fed will look to blunt any negative reaction to a taper, which will help appease the doves on the FOMC by strengthening the Committee’s forward guidance; tapering is not the same thing as a tightening. The Fed wants to hammer home the message that even after asset purchases are completed, monetary policy will remain extraordinarily accommodative. Fed Nominee Yellen believes this will lower term premium and help anchor longerterm rates. How will the Fed strengthen forward guidance? Words are cheap (at least relative to other measures, such as tinkering with IOER), so we believe the best way to extend guidance is to change the threshold on the unemployment rate—especially since the rate is already at the level Chairman Bernanke had previously targeted for the completion of asset purchases. Note to Fed: If unemployment insurance benefits are not renewed next month, the unemployment rate could promptly fall another three-tenths. Conceivably, the unemployment rate could be 6.5% by the March meeting. Does the Fed really want to continue to have to explain why a 6.5% threshold is not a trigger for tightening and why investors should ignore it? It seems to us that the easiest and most efficient way to strengthen forward guidance is to lower the unemployment rate threshold to 6.0% (or possibly even 5.5%). What about the fact that just “a couple of participants” supported a change in the threshold? The minutes were compiled before William English—the Secretary of the FOMC and the most senior economist at the Board of Governors—presented a paper at the annual IMF meeting in November which said that the optimal unemployment rate for the Fed was 6% or lower.


We do not believe the Fed is going to cut the interest paid on excess reserves for two reasons: One, this will not stimulate lending; and, two, it could cripple the short end, potentially causing major negative consequences. For example, some large money center banks warned they would begin charging depositors. What about the forecasts? The Fed will likely slightly raise its long-term GDP forecasts, trim its near-term unemployment rate forecasts and essentially maintain its inflation forecasts. We doubt the fed funds forecasts will change appreciably, since the economic forecasts should be little changed.

We have reached out to Phil for his take and will update the post when we get a full comment from the groundhog's spokesman.

* * *

Update: we are inform readers that Phil has responded.

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NotApplicable's picture

So... after this led balloon is floated, they'll be back in a couple of months with a "$5B Taper, fer sure, fer sure!"

Then a $3B taper...

Then a $2B taper...

Headbanger's picture

Might as well make it $20 billion and get the pain over with early.

One silver lining could be lower gas prices but I doubt it.

So it all sucks.

Deo vindice's picture

"There seem to be two camps at Deutsche Bank these days: one, lead by the observant and somewhat contrarian Jim Reid"

It's "led". Lead is present tense. Led is past tense.

fonestar's picture

Who gives a crap what these soothsayers and card readers "see"?  They must be pretty important in their world (or at least in their own minds).

johngaltfla's picture

If Joe said it, it's wrong. After all, he did state in teeth of the 2008 recession that there was no way the economy was in a recession.


He's correct 24 out of about 24 billion predictions so there is a chance he's as right and accurate as the BLS.

sgorem's picture

@ 'star, you're correct. it really doesn't matter with all the talk of a taper, or not. $10 billion or $10 gazillion, the fucking fed, along with it's minions have debased, defiled, disgorged, dismembered & disentigrated the the economy so badly now, it's like putting lipstick on a decomposing pig carcass. fuck you bernanke, you lying unscrupulous piece of shit.

Exponere Mendaces's picture

This is how its going to go - zero taper, and some bullshit in there that is a catalyst for the market to rally its ass off before X-Mas in the states.

Later, they'll spread some more rumors about possibly "looking at" tapering, you know, when it is convenient to fuck the market up.

Rinse and repeat, for a zillion times before something actually happens, just like the EU announcements about the fucking Euro and Greece.


HungryPorkChop's picture

They wouldn't dare do anything that would impact the holiday buying season as they need those good consumer spending numbers to keep the stock markets pumped up til' the very last minute. 

rqb1's picture

QE has been front loaded this month.  No pomo days after Christmas, and if I remember tomorrow is the first non money printing orgy day of the month. 

Doubleth1nker's picture

At least we know the groundhog isn't talking his book and didn't get the Fed taper/no taper memo.

frankTHE COIN's picture

Bad Luck SchlipRock has spoken.

dryam's picture
Should be titled....Deutsche's Deuchebag Joe LaVorgna
SheepDog-One's picture

'Joey Baloney' is his bankster gangster name.

TheFourthStooge-ing's picture

If Joe LaVagorna smells taper, expect burrows of large rodents to spontaneously erupt in gushers of clownbux.

Mad Mohel's picture

Joe LaVorgna should stick to giving tips about the trifecta.

El Vaquero's picture

The Fed cannot taper and it cannot not taper.  What to do, what to do...


Fuck you Yellenanke!

kralizec's picture

Fuck Bernanke, Stop Fuckin' Yellen!  Resist We Much!

Spungo's picture

What happens if they stop all QE but don't tell anyone? "Oh yeah we're still monetizing debt. Don't worry about it."

El Vaquero's picture

Well, the banks and the Treasury would know about it.  Treasuries would have to be sold to someone, so yields would go up.  Banks wouldn't be getting those nice Fed digital dollars for their shit MBSs and whatever that entails for shadowbanking.  They couldn't stop without people noticing. 

BringOnTheAsteroid's picture

Hang on, why do treasuries need to be sold to someone. Why can't the Fed just say the treausries have been sold and still just give money to the banks and congress. In fact can't the Fed just cut over all the data feeds to the stock exchanges and set the prices of stocks at will and just feed fake volume numbers into the system. Can't Congree just cut over from all the statistical feeds from all the various agencies and just set the numbers at whatever they like (I know, this is what is already happening but the fake numbers are coming from agencies). Cannot the entire system just become one gigantic matrix with all the data feeds ever c onceived of coming from a central planning super computer.

BringOnTheAsteroid's picture

Hahahahaha, that's pretty much what;s it come down to. 

max2205's picture

They should stop qe and get the 3 year rate up to 5%....party over bitchezzz....lets let CONgress show us what they got

jcaz's picture

Umm, because the 6.5% unemployment number is Barry's wet delusion?   Even Benny knows we'll never hit it, thus no tapering warranted....

But oh yeah, if we ever DID hit that number, then oh sure, taper-up, kids.....

What a waste of noise....

kill switch's picture

Taper-up $170 Billion


Lordflin's picture

Well... no opinion on taper... well, some... unlikely would be my guess. But it is a guess, as no one can predict a manipulated market unless an insider...

On the subject of no predictions, expect a morning smackdown of PMs ahead of any anouncement...

FieldingMellish's picture

Peter Schiff has been the only correct caller on taper so far, what's his take?

Dr. Richard Head's picture

The last time we went through this he-taper/she-taper game Schiff was pretty adament that there would be no taper, but MOAR taper.  I would assume his position has continued as such, but have seen nothing from him to confirm.  I did, however, see a funny video of him going to WalMart shoppers and asking them to pay a 15% service fee on all WalMart goods in order to support the higher wages.  Quite delicious exposing the cognitive dissonance of the peoples.

FieldingMellish's picture

Yeah, I saw that one. Loved the old man at the end. "nobody wants to pay higher prices." Perfect.

Heffer's picture

Instead of higher prices for the consumer maybe a couple million less from the billions that the Walton clan make off the backs of every american.

SheepDog-One's picture

They're seriously gonna taper by $1/month this time.

fijisailor's picture

Taper propaganda.  There will be no taper only additional QE as the lies collapse.

El Vaquero's picture

Any real taper would lead to an event that would become known to historians as "The Great Un-Taper." 

ebworthen's picture

Joe "The Forehead" LaBologna?

Sure Joe, you think they're going to taper right before Christmas?

C'mon, you just want folks to sell - so your handlers at Deutschbank can buy.

Stantelli just did a Santelli on "Closing Bell". 

Zinger he got off to smack down one of the equity pimping FED devotees: 

"If Ben Bernanke were the head of a corporation or a hedge fund he'd be celebrating from behind bars!"

Smiles and nodding heads from most.

GoldenDonuts's picture

Smack gold tonight.  Taper tomorrow and pms drop a lot more.   The big Shorts can paper over their positions at much lower prices and reverse course when they "discover" that nobody else wants treasuries at this low interest rate and have to buy back in.  Hey everybody who counts wins.   Except of course the bottom 99%.

logicalman's picture

Everybody who counts wins - we all know the 99% don't matter.

quasimodo's picture

Newsflash, metals will get shit canned regardless of what happens tomorrow. Every time we get these mini rallies and some folks are shouting with jubilee "moonshot baby!" I just shake my head, mutter a "go f yourself" to myself and chuckle at the shenanigans I always know will happen the next day on some stupid ass, obscure tidbit in the MSM.

The other day they were trying to tie it to unrest in the Ukraine. For Pete's sake! WTF does anything in the Ukraine even remotely have to do with the price of metals?! Did someboday accidently flush an gold eagle down the toilet there?

WTFUD's picture

That's sexist what about cowshit.
Taper my arse i've got the runs.

Kirk2NCC1701's picture

To be clear... "Taper" = "SLOW DOWN of fiat Currency* Creation Rate."

When you're on the toilet, having a #2, and you have a "taper", you don't actually stop pooping instantly.  But the fecal taper in these instances does lead to a cessation of further expelling, whereas with CBs the taper of their chit can last much longer.

*What they (CBs and TPTB) call "Money", is technically "Currency".  Since Money is backed by real assets (gold, silver), and Currency is backed by "Decree", i.e. brute force of a military + LEAs, and their ability to kill or jail people for not paying Taxes that are levied against these Debt-backed currencies.

Bryan's picture

It's the same definition as "spending cut" by congress, which is not truly a cut to a lower amount, it's a reduction in the amount of additional spending that will be done.  We have bastardized the English language into some new form of alien communication.

RagnarDanneskjold's picture

Every Fed meeting is going to be like Groundhog Day until they make a decision.

YC2's picture

"put your little hand in mine ...

ExecutionParty's picture

Que up another taper headfake from the MSM, Banks, and the FED.


"this time its different, we're super cereal about tapering this time... SUPER CEREAL"



wagthetails's picture

"we will taper $10bn....starting in 2015"

KTV Escort's picture

I don't get the obsession with that word. At least Hilsenrath, of all people, had the decency to use "winding down" recently. They won't reduce before Christmas, if ever. For crying out loud.

Clowns on Acid's picture

KTV - It's the XMAS thing... but also Year End funding issues by banks globally. Why risk causing a problem or a perceived problem.

B.J. Worthy's picture

No Taper. VIX-raping TPTB are speaking loud and clear this afternoon.