I was disappointed in the lack of tapering, actually. It's just been put off until next month. The only reason not to taper is because of its impact on the markets, and the Fed had got the market into a place where tapering would not have had any really severe impact. Who knows if it will still be there in October? It was riced in and now it has been priced out.
Lots of people are asking that question though. I was surprised by the violence of the reaction to the non-taper, and I am expecting a lot of the moves will be reversed in fairly short order.
Interestingly, a lot of the steepening of the yield curve had already been evened out by the close. The 10-yr caught up to the 5yr in terms of yield drop (17bp vs 19bp) and the 30-yr also dropped another 5bp before the close to catch up on the 5-yr a bit. What did I say about the bond traders being the smart money? Expect the share traders to work it out next week and the gold/commodities traders to work it out sometime in October.
All eyes on tonight's new jobless claims and the revisions to last week's number which was tainted by IT glitches in a couple of states.
it's a Keynesian thing and there will be no taper in real terms. There's a new way of doing things but not many people are paying attention imho
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
The only reason the unemployment rate has dropped at all is because of the fall in the participation rate. In the U.S., the job participation rate is the lowest since the 1970s, real unemployment (calculated on a consistent basis) is 23%, workers’ real wages have not gone up for decades, 50 million people are on food stamps, government deficit runs at $1 trillion per year and government debt including unfunded liabilities is $220 trillion and growing exponentially.Does this sound like an improving economy? Well not to me. Also, the banking system has the same toxic debt and derivatives as in 2008. The banks are just fortunate that they don’t have to value their assets at market. If they did, very few banks would be standing today.
lol, it's funny to read all the views here from the minds of people who believe the printed propaganda. But back of it all of course is greed. No one wants their 5 or 6 figure investments to fall into line with the reality of the future economy. Confidence, it's all about confidence and they are all engaged in one big confidence game. me for a quiet bit of rural land when it eventually all goes sideways.
No Taper. This has surprised every single analyst I think. Sure surprised me.
All the money seems to be agreement. Bonds, stocks and gold all spiking up.
Interestingly, the yield curve steepened - 5yr down 14bp, 10yr down 9bp, 30-yr down 5 bp. Obviously heightened inflation expectations trump any downward pressure at the long end of the curve.
S&P went from down 0.1% to up 0.85%
Gold up nearly $15. Less than I would have expected under the circumstances.
I should have put my call down yesterday. Oh well, it was late and I wanted to get to bed. I was going to edit my post and say no taper.
Now the market moves with every utterance of the Fed. Only have to hint at tapering, then do nothing and crush the bond shorts. The only reason the Fed would taper bond purchases is if the bond market became illiquid because the Fed owned the majority of 10Y equivalent bonds, which it currently is on track to do Q1 next year (unless the deficit suddenly shrinks, in which case it may even be this year).
Interesting observation on the yield curve convexity. Presumably greater convexity is symptomatic of 'risk on' behaviour as participants bid up short money to buy risk assets.
I agree with b_b, I think this means another rate cut or two from the RBA, unless commodities are bid up sufficiently to cover the stronger dollar.
The only reason the Fed would taper bond purchases is if the bond market became illiquid because the Fed owned the majority of 10Y equivalent bonds, which it currently is on track to do Q1 next year (unless the deficit suddenly shrinks, in which case it may even be this year).
This is the main reason I was pretty sure a taper would happen last night. Unlike overnight rates, the Fed's ability to influence long-term yields is limited by the volume of securities in the market and as you say, it will start influencing liquidity at some point. Every bit of tapering increases the length of time asset purchases can continue.
My guess is that the FOMC are very worried about what the politicians are going to do on the fiscal side over the next couple of months. It is not looking good.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
This is the main reason I was pretty sure a taper would happen last night. Unlike overnight rates, the Fed's ability to influence long-term yields is limited by the volume of securities in the market and as you say, it will start influencing liquidity at some point. Every bit of tapering increases the length of time asset purchases can continue.
My guess is that the FOMC are very worried about what the politicians are going to do on the fiscal side over the next couple of months. It is not looking good.
The way I see it is this. During credit booms, people obviously lever up and buy stuff (houses, cars, w/e). At some point they are too levered for comfort, so they start to delever and save, after a time when they feel comfortable with their reduced leverage and greater savings position, they start to spend again. But if the Fed suppresses rates, it disincentives people to save, but they will refi or pay down more of their debt to delever. However, that means that their is no credit growth in the Main Street economy, so business activity remains stagnant or continues to decline, which means employment remains weak or contracting. In the meantime, Wall Street has taken advantage of cheap short money to bid up risk assets, creating a credit fueled equity bubble. If the Fed continues to suppress rates, Main Street activity will continue to stagnate, as will employment. If the Fed raises rates, Wall Street will need to unwind their credit positions, and to do so will need to sell down equity positions, causing equities to crash, taking out the retirement funds of many Americans. The Fed is fucked either way. They have a choice of either impoverishing the Baby Boomers by destroying equities, or impoverishing everyone else through high unemployment. Next stop, long term persistent deflation.
The way I see it is this. During credit booms, people obviously lever up and buy stuff (houses, cars, w/e). At some point they are too levered for comfort, so they start to delever and save, after a time when they feel comfortable with their reduced leverage and greater savings position, they start to spend again. But if the Fed suppresses rates, it disincentives people to save, but they will refi or pay down more of their debt to delever. However, that means that their is no credit growth in the Main Street economy, so business activity remains stagnant or continues to decline, which means employment remains weak or contracting. In the meantime, Wall Street has taken advantage of cheap short money to bid up risk assets, creating a credit fueled equity bubble. If the Fed continues to suppress rates, Main Street activity will continue to stagnate, as will employment. If the Fed raises rates, Wall Street will need to unwind their credit positions, and to do so will need to sell down equity positions, causing equities to crash, taking out the retirement funds of many Americans. The Fed is fucked either way. They have a choice of either impoverishing the Baby Boomers by destroying equities, or impoverishing everyone else through high unemployment. Next stop, long term persistent deflation.
Asset purchases is just what you do to lower interest rates once the cash rate hits 0. Anyone who thinks it doesn't work just needs to see the reaction of the money markets to the surprise to see that they are wrong. In fact, since the magnitude of the surprise is so well-documented, you can even make a good estimate of how much it works.
So in effect, the Fed yesterday failed to raise interest rates. It seems strange to me, because they had jawboned so well that they had a freebie - tapering could have started with no significant market reaction. Now they will need to jawbone all over again.
There is pretty-much no indicator on the US economy that doesn't show that it is in quite a bit better place than it was 12 months ago. However, there is no doubt that employment could have done better. About 2M jobs have been added over the last year, which is not enough. To my mind this has very little to do with monetary policy. All the monetary stimulus required and then some has been applied. The problem is that Congress has been acting at 180 degrees to the Fed and if they had done the right thing there would probably have been 750k-1M more jobs added over the last year - which would have been more than enough.
As for the price of equities, the level and short-term gyrations are pretty-much irrelevant to the equation as long as they don't move around too fast. Only the speculators give a fuck. (OK. So I do give a fuck, but I don't expect US fiscal and monetary policy to be driven by my needs.) Whatever happens as a result of short-term jiggery-pokery will be readjusted in line with fundamentals and the 401(k) pension plans will grow at a few percent more than nominal GDP over the long term. There are these things called earnings reports and dividend payouts that keep injecting doses of reality. Which brings us back to jobs, of course.
I note that new jobless claims tonight came in at a probably realistic 309k, which represents another leg down towards the 280k which is the level you seem to have when there is full employment. Moreover, continuing claims came in at 2.8M which is nearly 200k down on where it was a few weeks ago. More evidence the fed should have tapered.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
In total, the U.S. has paid more than $3.3 trillion in interest (federal, state and local governments, financial institutions, business and households) in 2012, which accounts to $10,505 per citizen.
Taper? Not likely this side of a total economic collapse.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
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