Look Out Below, Fed Tapering Edition
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6.20.13 futes

 

Really!?!

Really traders!?! Did you really believe that the Fed was never going to stop buying bonds? Really?!?

Do you think that the Fed was going to have an infinite accommodation, and that rates were going to stay at zero forever? Is that what you expected from the Central bank. C’mon, Really!?

And what about the dreaded hyper-inflation you have been warning us about for so long? Inflation has been so low for so long that it had its name legally changed to Deflation. Really!

united-states-inflation-cpi
Source: Trading Economics

 

Where you out the day Bernanke said he was targeting Unemployment, which has fallen from nearly 11% to 7.6%? Did you forget about that? Really!?!

UNRATE_Max_630_378
Source: FRED

And this entire Risk On rally — did you really think it was going to last forever? Really? US Equity are up nearly 150% over the past 5 years, didn’t you think it had to eventually slow down? Did you actually believe Markets were a uni-directional bet? Really?!?

SPX 5 year

 

The Fed has a dual mandate — stable prices and maximum employment. Did you really think there was a third component of maximizing your risk free equity returns? Really!?

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This has been Really!?! With Ben & Janet.

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Category: Economy, Employment, Federal Reserve, Inflation, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

32 Responses to “Really!?! With Ben & Janet”

  1. rd says:

    “The Fed has a dual mandate — stable prices and maximum employment. Did you really think there was a third component of maximizing your risk free equity returns? Really!? ”

    Ummmm…. actually yes. We, the financial sector, invested heavily in our politicians to deliver long-term risk free guaranteed returns with very low tax rates. One of the key tools that the politicians use to deliver this primary national economic is the appointment of the Federal Reserve Board. The fact that this man has now decided that he could allow other less important things like stable prices and employment drive his decision-making is completely unacceptable. This means he must go, as Obama pointed out the other day.

  2. MayorQuimby says:

    The most beautiful thing about the market is that it is smarter than all. Who knows what is going on – I think we were headed for another bubble and Ben said – ‘not this time guys’ – hence the insane S&P divvy.

  3. ByteMe says:

    Really.

    And where’s the shock coming from? The 10-year bond has climbed nearly 70 points in the past 6 weeks. If that wasn’t a good investor’s first clue that there wasn’t a willing buyer on the other side of the trade….

  4. Petey Wheatstraw says:

    You know the old trick where the waiter snatches the tablecloth from the table but the place settings, center piece and other dishes stay put?

    This is not like that.

  5. call me ahab says:

    pretty funny stuff there BR

    one of the inaugural “Really” episodes on SNL. . . pretty funny as well

    http://www.youtube.com/watch?v=LdE4FIYSmk8

  6. scottinnj says:

    You thought stocks shoud continue to rally while HY bond spreads widened by more than 100bp in the last 30 days, really?

  7. flocktard says:

    Bernanke:

    “I’m not going to repeat the mistake of 1937 by tightening too soon, and I’m not going to repeat the mistake of 2004 by letting low rates run too long.”

    Markets:
    “We don’t like either.”

  8. cec352 says:

    he he he …

    and you

    do you really

    think

    that a day make a trend ?

  9. Concerned Neighbour says:

    I’m not a trader BR, but guilty as charged!

    Remember we’re only a stones throw from all-time highs. I expect this very minor “setback” to quickly give way to the inevitable uni-directional trend to DOW 36K – perhaps starting today by yet another in a too-long to list afternoon miracle pump.

  10. Moss says:

    The fact that most financial assets were ramped by the monetary policy to begin with makes the adjustment so volatile and sudden. Part hissy fit I suspect reminiscent of when Obama won his second term. I do believe however the Fed is suffering from confirmation bias.

  11. ashpelham2 says:

    yesterday’s drop and today’s futures slump just reeks of spoiled-rotten temper tantrum. Asymptomatic of our culture. Further evidence for the need for late-career investors, nearing retirement, to be properly allocated based on their tolerance for risk and other factors.

  12. george lomost says:

    I must live in a parallel universe because I thought Bernank contradicted himself at every turn yesterday.

    I will believe that the Fed will taper when it actually happens.

    • rd says:

      He is a central banker. By definition, central bankers speak in circles.

      However, I think it is improtant that 2013 is Obama’s first year in his second term and it is also now officially Bernanke’s last year of his tenure based on Obama’s comments earlier this week. Both of them will want to get any tightening done sooner rather than later – Obama because he doesn’t want to be George Bush and have a crash in his last year in office and Bernanke because he will not want to force the next chair to have to tighten much more than necessary to demonstrate that they are not a complete dove.

      Since Congress is still in austerity mode, we won’t see much increased federal spending but I think we will see tightening around the edges of monetary policy by both the Fed and Treasury in 2013. I don’t expect the S&P 500 will be at a new high at the end of the year and I would be surprised if the 10-yr T-bonds are below 2.5% then as well..

  13. It’s nice of them to offer those of us with cash the opportunity to get in again at lower prices.

    • b_thunder says:

      You beat me to posting exactly this comment!
      But for me the prices would have to go far, far lower to entice me. I’m talking the “deficit ceiling” low of 2011 or even summer-2010 lows. To around 1000-1100. I’m a big believer in a “‘fat’ margin of safety” before I go all-in. But I doubt that any Fed Chairman would let that happen…

      • I’m more of an algorithmic rebalancer myself. I’m decent at spotting tops but not so good at picking bottoms, so I just buy whatever’s on sale compared to everything else, whenever it’s far enough on sale to make it worth the hassle.

      • I find the opposite — bottoms are easy to see in real time, tops are usually after the fact for me.

  14. constantnormal says:

    Gosh … d’ya think that the markets will refocus away from carry trades and silly games with risk-free low-cost money and return to the long-neglected art of valuing businesses?

    Nah … that’s crazy talk …

  15. rallip3 says:

    If the Fed stops buying Treasuries, maybe someone will rise up to take their place, particularly if the US currency is strong and the fiscal deficit falls.
    No recovery has ever been halted by rates below 2%. The big risk is not a managed and telegraphed rise in interest rates at say 20 bps per month but rather a shocking print on inflation that forces an adjustment of 300 bps in a single month on an unwilling Fed. There is already plenty enough cash on deposit, and all it would take is that enough people shift from seeking investment assets to buying consummables. I know that there is no sign of inflation now, but that very absence of warning is what would make this a shock.
    Actually I would go further and make the following guess: if 2% short term rates would kill the current recovery, then we are probably doomed to depression anyway.

  16. b_thunder says:

    I have another one:
    Bernanke is committed to “Making Sure “It” (deflation) Doesn’t Happen Here.” Really? With rates and USD up sharply and “wealth effect” influence over, he still thinks that the economy will accelerate and inflation will pick up? REALLY?

  17. BennyProfane says:

    I think China is the bigger story.

  18. ElSid says:

    The “really?” here is why anyone thinks that anything the Fed *says* is actionable. What they say is as likely the opposite of what they are going to *do* as anything. In fact, there is good reason for them to keep saying “taper soon, taper soon, taper soon”, in order to attempt to manage the effects of their programs, all the while keeping whatever program in motion.

    Have any of the conditions changed? That requires an investor to do a more complex analysis and take a potentially lonely stand, one way or another.

  19. agronox says:

    Would love to hear what happened behind the scenes, as this doesn’t seem like something Bernanke would want. Did he, now revealed to be a lame duck, not have the votes to be more dovish? Because given how big of a downer 2008 was, I’d expect him to leave the punch bowl out longer. It’s not like there’s any inflationary pressure.

    Why is the taper tied to very modest gains in unemployment? 6-7% is still too high to be tolerated in my opinion, especially given the collapse in participation rate.

    My portfolio has gotten much more defensive over the past few months, so I shouldn’t be hurt too badly by this, if at all, but I don’t think this is good policy.

  20. nofoulsontheplayground says:

    BAC is close to breaking down from a head and shoulders top that targets $11.60. That suggests we’ve only seen about half of the pullback we’re going to get off the S&P 2013 highs.

  21. willid3 says:

    isnt this sort of like stocks should go up, even when the business is getting lower sales monthly? not sure how that ever was to be the new normal

  22. Tim says:

    Ben & Janet?…..or Ben & Jerry?

  23. Ny Stock Guy says:

    I’m just trying to decide if I should buy a lot now or wait a few weeks until the market really tanks.

  24. 4whatitsworth says:

    Well this is all just talk so far. Let’s not forget Uncle Sam will have to refinance it’s 17 trillion dollar debt at this higher rate, the house will need to authorize and increase in the debt ceiling to pay the debt, and the value of the debt the US government currently holds will be reduced.

  25. makeyourownmoney says:

    Um.. “Don’t bet against the Fed”? Isn’t it just as valid the other direction?

  26. heywally says:

    It’s really not a matter of individual ‘traders’ being surprised by the Fed, it’s a matter of how the herd has to react to news that is front and center. The herd knows that there are Lions in the brush but it also knows that the rest of the herd will not fully react until the Lion is right on the path.

    It could be a steeper plunge this time but what usually works is buying/scaling in to the dip in conservative amounts, at support areas and then waiting to scale out into strength later, never letting the inventory of longs get too large. Fed or no, no macro opinion necessary.