5 Reasons For QE Tapering In December - NFP Analysis

|
 |  Includes: BXDB, BXUB, BXUC, DDM, DIA, DOG, DXD, EPS, IVV, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL, SDOW, SDS, SFLA, SH, SPXU, SPY, SQQQ, SSO, TNDQ, TQQQ, TRND, UDOW, UPRO, VOO
by: Yohay Elam

The Non-Farm Payrolls report in the U.S. came out better than expected, not only in the headline numbers, but also in the details. It seems that the plan that Bernanke laid down back in June remains fully intact. This means the beginning of the end of QE by the end of 2013.

If this NFP is the one that decided the fate of the upcoming U.S. rate decision, the verdict is: Taper. Here are 5 reasons for the "Dectaper":

  1. Lower unemployment, more participation: The unemployment rate fell to around 7%, despite a rise of 0.2% in the participation rate to 63%. This shows a stronger U.S. economy.
  2. Unemployment rate thresholds: Bernanke mentioned that QE tapering could begin when the unemployment rate drops to 7% and that the rates will remain low until a level of 6.5% is hit. These are thresholds and not triggers, and also the participation has fallen since. Nevertheless, tapering, even a small one, seems closer.
  3. Improvement in the real economy: The "real unemployment rate", U-6, fell to low levels of 13.2%. This wasn't seen for a long time and shows that more people really feel a recovery.
  4. Not a one timer: The U.S. enjoys consistent gains in jobs in the past year. This isn't just "one report". The report for October was very similar: +200K. The four month average stands at 204K.
  5. What shutdown?: The U.S. economy shrugged off the U.S. government shutdown: we now have data for the month after the shutdown, November, and revised data for October. Both are good. Despite 16 days of shutdown and scary headlines, the U.S. economy totally shrugged it off. So, even with the scare of another shutdown in January and another debt ceiling deadline scare in February or March, it seems the U.S. economy can handle this, and also a lower pace of bond buying from the Fed.

What do you think? Will we see the beginning of the end of QE on December 18th?

Further reading: real reason for a potential "Dectaper"

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.