Is "the taper" even possible?

[almost there]

Agree.

For a real thrill lay the Nikkei over the S&P 500 from 1984 to 2013.


Try it!

 

[sheehs1]

My thoughts are along this line. Payroll receipts were moving along at around +4% annual increase through December, which is barely above stagnant. PCE increases have come from decreased savings, and most of that is the result of a 50 year low in household debt servicing levels. Neither US households nor the US government can service their debts and maintain spending if rates rise above their current levels, and employment is not growing nearly fast enough to change that anytime soon. I see rising rates as strongly recessionary.

Agree with this MichaelB.

I think everyone overreacted to Bernake's comments. I believe we still have some headwinds and possible fault lines. To quote the WSJ it will take 9 years due to population growth to reach pre financial crisis employment levels if we add only the 175K - 200K new jobs they have been reporting. Seems people are counting on the housing market and consumer spending and both are still suspect in my opinion. U.S. college graduate employment is 60% to quote my financial guy. Europe is in a recession. Europe is China's biggest exporter. China is set to have a real estate crisis of it's own....at some point. Emerging markets tanking. The U.S. at federal, state and local levels is taxing it's consumers harder than ever before. Massive fraud in every system run by our various governments.
But....logic doesn't always seem to be the best predictor either....

 

[Lsbcal]

While some don't like Bill Gross and Pimco, I like to read his comments. Some of his latest thoughts are here: PIMCO | Investment Outlook - The Tipping Point

Some selected quotes:

1) The Fed’s forecast of the economy which prompted tapering panic is far too optimistic
...

2) Inflation, according to the Fed’s own statistics is running close to a 1% pace

3) Yields have adjusted by too much.
...
In any case, if frontend curves are up to 50 basis points cheap, then intermediate curves – the 10-year Treasury – may be as much as 35 basis points too cheap. They belong in our opinion at 2.20% instead of 2.55%.

This last quote seems to go along with Ha's original suggestion above:

My wild guess is that the taper doesn't happen, or happens in a very mild way, and the 10 year treasury interest rate is close to its peak for 2013.

 

[Independent]

If I understand Bernanke, the "taper" is tightly bound to the economy. Predicting how fast the Fed will unwind QE amounts to predicting how fast the economy will improve.

The "recovery" has been extremely slow. The bright spots recently are autos and houses, and they are both very dependent on interest rates.

There's always the possibility that businesses will start buying and building in the US, but I don't see what's going to cause that.

So I'd guess (very slow recovery) => (very slow taper).

 

[Gatordoc50]

If I understand Bernanke, the "taper" is tightly bound to the economy. Predicting how fast the Fed will unwind QE amounts to predicting how fast the economy will improve.

The "recovery" has been extremely slow. The bright spots recently are autos and houses, and they are both very dependent on interest rates.

There's always the possibility that businesses will start buying and building in the US, but I don't see what's going to cause that.

So I'd guess (very slow recovery) => (very slow taper).

It was my understanding that he has set a definitive timeline on the exit. Within the next year. There is a point where treasuries are actually a decent investment. If inflation is 1% and the ten year is 2.5, then you are getting a 1.5 real return for a very safe investment. So, I see treasuries being bought up by investors which should keep the pace slow but upwardly moving as the economy improves. Whatever asset or price decline this causes is the amount of appreciation or stability that was caused by the unnatural rates in the first place. However, I do agree that it is likely that the Bankers failed to consider eventual rate hikes in their investments which could lead to some ugly unwinding.

 

[Lsbcal]

It was my understanding that he has set a definitive timeline on the exit. Within the next year. There is a point where treasuries are actually a decent investment. If inflation is 1% and the ten year is 2.5, then you are getting a 1.5 real return for a very safe investment. So, I see treasuries being bought up by investors which should keep the pace slow but upwardly moving as the economy improves. Whatever asset or price decline this causes is the amount of appreciation or stability that was caused by the unnatural rates in the first place. However, I do agree that it is likely that the Bankers failed to consider eventual rate hikes in their investments which could lead to some ugly unwinding.

But the market is not saying 1% inflation for 10 years. It is saying (roughly):
inflation = 10yr Treasury - 10yr TIPS = 2.5 - 0.5 = 2%

And 2% is what the Fed would like. They would even tolerate 3% for a while IMO. We did have 3% inflation in 2011. It got as high as 3.9%.

P.S. I'm not saying I know where this is all headed. Just an observer with some numbers to share.

 

[rbmrtn]

It was my understanding that he has set a definitive timeline on the exit. Within the next year.

I still don't see how anyone got his from what he actually said.

FOMC statement

Federal Reserve Statement

The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.

Taper Tipoff? Bernanke Hints Easing End Is Nearing | Nightly Business Report

“If you draw the conclusion that I’ve just said that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy,”

 

[Gatordoc50]

I still don't see how anyone got his from what he actually said.

FOMC statement

Federal Reserve Statement

The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.

Taper Tipoff? Bernanke Hints Easing End Is Nearing | Nightly Business Report

“If you draw the conclusion that I’ve just said that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy,”

http://www.moneynews.com/StreetTalk/Fed-bonds-quantitative-easing/2013/06/19/id/510804

I'm going off of the statement in this article.

 

[Independent]

When it comes to reading the tea leaves of Fed statements, it's probably best to look at the statements themselves.

AFAIK, the "one year" time frame came from the press conference. The Fed releases an official transcript. This is what I saw (I added the bold)

Going forward, the economic outcomes that the Committee sees as most likely involve continuing gains in labor markets, supported by moderate growth that picks up over the next several quarters as the near-term restraint from fiscal policy and other headwinds diminishes. We also see inflation moving back toward our 2 percent objective over time. If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.

That is, changes in the purchase rate will happen IF the actual economy matches the current Fed forecast.

http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20130619.pdf

 

[Gatordoc50]

Check out this video on YouTube:

Sent from my iPhone

Another non-statement in this video. Um, Errrr, Ugh, Um, Errr...

 

[almost there]

All the fed has is interest rates. Up or down.
Thats how they control free markets.
Now they can print money out of thin air. Thats new.
Those are the 2 things they can do.

 

[Gatordoc50]

http://m.usatoday.com/article/money/2481807

It's time to end this silliness. Economic picture brightens/ stocks tumble. Economic picture darkens/ stocks take off.

 

[MichaelB]

USA TODAY

It's time to end this silliness. Economic picture brightens/ stocks tumble. Economic picture darkens/ stocks take off.

How about a summary or snippet so members need not click on an unknown link?

 

[Gatordoc50]

How about a summary or snippet so members need not click on an unknown link?

Got it. Thanks.