Seeking Alpha

FOMC Minutes: Committee comfortable with initiation of taper

  • Almost all participants agree with Bernanke's comments from the post-June press conference and his July congressional testimony - that QE taper can begin should economic progress continue as expected, with an eye towards ending the program altogether around the middle of 2014.
Comments (106)
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    The market is like ...

     

    "OMG I can't find a vein! OMG!"
    21 Aug 2013, 02:06 PM Reply Like
  • Val Halla
    , contributor
    Comments (307) | Send Message
     
    this is all part of the recovery thesis. will it lead to a correction? quite possibly yes. global markets have been completely roiled here actually. so have gold and silver markets as well. having said that if this becomes dollar supportive then over the long run this is very good for sustaining current government largesse with the current debt levels. obviously if this sound money gives investors renewed confidence to invest in the USA (as if they need more reasons right now) then this should help in continuing to keep the economy on a growth trajectory, keep that deficit moving in the right direction and hopefully start moving beyond the "jobless prosperity" David Rosenberg famously called this.
    21 Aug 2013, 02:22 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    Frustrated bears can be very dangerous , rarely correct but very dangerous
    21 Aug 2013, 02:44 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Who are those frustrated bears? Are there even bears anymore? Can anyone afford to short the markets with them being propped up by $85 billion per month? Seemingly not. Short interest has been running low.
    21 Aug 2013, 02:47 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    Frustrated Bears are those that "blame the fed" for their own mistakes..

     

    Probably blame the fed for global climate change as well :)
    21 Aug 2013, 03:07 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Well, blaming the Fed is perfectly viable, in the sense that when the Fed manipulates risk asset markets directly, it can choose to favor one side or the other, and it does so arbitrarily.

     

    And I am sure you don't deny that buying $85 billion per month in risk assets has a HUGE impact, overwhelming almost all other fundamental considerations. So the Fed is basically setting the direction of the markets arbitrarily.
    21 Aug 2013, 03:09 PM Reply Like
  • wheelz23
    , contributor
    Comments (48) | Send Message
     
    Blaming the fed is not viable. They didn't force you to trade. You are responsible for your own trades.
    21 Aug 2013, 03:34 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    The Fed can act arbitrarily after you have a trade on. It can change the outcome arbitrarily. It can chose for you to lose or win, even if indirectly.

     

    The Fed effectively sets the direction nowadays. Indeed, any 10-20% drop in the equity markets is to be bought because the Fed will always act to wipe it out.
    21 Aug 2013, 03:44 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Paulo,

     

    I don't understand this populist rant. The Fed restored the health of the American economy. It isn't "propping up". It took up the slack caused by the huge loss in wealth suffered during the Great Recession and has the economy on track for a good year. Last year's real GDP growth 2.7%. We are likely to get the same this year and over 3% next.
    21 Aug 2013, 04:09 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Paulo,

     

    The Fed got into QE because interest rates reached at zero. It could no longer lower the "r" in order to stimulate aggregate demand.

     

    This talk about "manipulation" is misleading. They intervened in the markets as their mandate requires in these circumstances and kept America from becoming Japan II.
    21 Aug 2013, 04:11 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Paulo,

     

    My Interactive Broker account has a 500% rate of return from May 1st to today. I am not a genius. I simply looked dispassionately at the economic data and saw tapering was inevitable and I was opportunistic. I bought TLT puts three to six months out and hedged with short term TLT calls.

     

    The economic data is pounding its fist on the table. Net employment growth of almost 200K per month since January is not compatible with QE infinity.

     

    And the latest economic reports that 2Q13 real GDP will be 2.3%,not 1.7%. With the momentum we are seeing in the July reports, that translates to 3% annualized real GDP in the 3rd quarter.
    21 Aug 2013, 04:15 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Congratulations, AiP. That's truly outstanding.
    21 Aug 2013, 04:16 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    AIP's , story is "typical " for those that used prudent judgement in looking at the price action of the markets instead of being Fed "obsessed"

     

    Naysayers say its all a fed "Illusion" , I can assure you the profits that have been garnered during one of the most prolific rallies on record are no "Illusion" .
    21 Aug 2013, 04:23 PM Reply Like
  • DNA Decoder
    , contributor
    Comments (106) | Send Message
     
    "Well, blaming the Fed is perfectly viable..."

     

    No. You choose what to do; and you can not make trading decisions solely based on economic fundamentals. The market is not the economy.

     

    "...when the Fed manipulates risk asset markets directly, it can choose to favor one side or the other, and it does so arbitrarily"

     

    Not arbitrarily. Not even close.

     

    "And I am sure you don't deny that buying $85 billion per month in risk assets has a HUGE impact..."

     

    $85 billions in MBS's and treasuries. Treasuries are not risky assets.
    21 Aug 2013, 04:27 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    DNA,
    A question, how much did the fed's programs add to the bottom line of CSCO , JNJ, the company of your choice ..

     

    in dollars & cents please.
    21 Aug 2013, 04:46 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Long maturities are risk assets.
    21 Aug 2013, 04:50 PM Reply Like
  • quinnman
    , contributor
    Comments (104) | Send Message
     
    2012 GDP was 1.9%. 2011 was 2.0%. 1st half of '13 is 1.4%. How's that for a return on $2.5 trillion? Risk adjusted?
    21 Aug 2013, 05:01 PM Reply Like
  • rungrandpa
    , contributor
    Comments (198) | Send Message
     
    Markets will return to the mean - after the nasty correction.
    21 Aug 2013, 05:36 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (10900) | Send Message
     
    Yes, and in doing so is distorting the whole market and muddling economic signals just like Austrian economists say shouldnn't be done.
    21 Aug 2013, 06:51 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo are you still short AMZN?
    21 Aug 2013, 07:31 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Yes I am, MI.
    21 Aug 2013, 07:43 PM Reply Like
  • peredina
    , contributor
    Comments (30) | Send Message
     
    Why dangerous?
    21 Aug 2013, 08:18 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Will you ever cover, Paulo?
    21 Aug 2013, 09:23 PM Reply Like
  • bbrady413
    , contributor
    Comments (757) | Send Message
     
    AIP,
    And why were interest rates zero? I suppose it has nothing to do with the Fed pumping $85 billion into risk assets every month. I'm sure if the Fed pulled QE out like a tablecloth that interest rates would remain at zero (yeah right). Wake up and smell reality. Even at the hint of a taper, the markets are getting crushed.
    21 Aug 2013, 09:33 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    MI, I will cover, when:
    1) AMZN plunges;
    2) or AMZN profits surge by the billions.
    22 Aug 2013, 03:30 AM Reply Like
  • Kyle10
    , contributor
    Comments (372) | Send Message
     
    American in Paris - Good job on generating that return, but your overall thesis is wrong. The Fed is manufacturing a phony recovery, so how can it stop? If money printing and cheap credit are the sole reason for the data, it doesn't make sense that they can just pull back now. If anything, they have to up the doseage. You act like the Fed is the training wheels and now the training wheels are coming off and the economy will ride on its own. I've got news for you: the Fed is the ONLY set of wheels.
    22 Aug 2013, 09:11 AM Reply Like
  • Kyle10
    , contributor
    Comments (372) | Send Message
     
    "dollars and cents please." Hahaha. typical straw man argument. Just like people say about inflation....if you can't give me your own numbers then you can't say the govt's numbers are bogus. Nonsense. If he can't count the impact to the exact penny then his whole argument doesn't hold water? Give me a break.
    22 Aug 2013, 09:14 AM Reply Like
  • Kyle10
    , contributor
    Comments (372) | Send Message
     
    Val Halla - You are joking, right? What sound money? Dollar just hit a 6-month low against the Euro the other day. A dollar from 100 years ago (not coincidentally the same year the Fed was created) is now worth 3 cents. Where is this sound money you speak of?
    22 Aug 2013, 09:28 AM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    Yeah, I keep wondering how Amazon makes money shipping me cheap stuff for free. The answer is, they aren't making money.
    22 Aug 2013, 09:53 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    Have we come across another frustrated bear.. ?
    22 Aug 2013, 10:04 AM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    Nope. I'm long, strong, and down to get the friction on. But I'm not buying anything now after an S&P run up like this. I'm certainly not buying a company that's up 240% in 5 years, and still can't turn a profit.

     

    Maybe you can make money from here in AMZN. Have fun.
    22 Aug 2013, 04:42 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    So, the Fed is buying on a monthly basis less that 1/2 of 1% of outstanding treasuries and MBSs, which is less than half of the new treasuries needed to fund the deficit, but somehow this is only driver of the price of these securities?
    23 Aug 2013, 11:30 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Actually the FED is buying amounts that EXCEED the net issuance needed to finance the deficit.

     

    Plus "$85 billion" speaks for itself as to the relevance. It's like the FED is buying the equivalent to the entire auto market ... twice over, per year.
    23 Aug 2013, 11:36 AM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo, You should check your numbers. Fed is buying ~$500B in Treasuries every year, which is less than the issuance needed to fund the deficit of ~$650B/year.
    23 Aug 2013, 12:05 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    The Fed is also buying MBS, which have an impact even greater than Treasuries (because of the higher yield). So Treasuries+MBS is actually > than $85 billion "in treasuries".
    23 Aug 2013, 12:13 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    The Fed is buying $85 billion in bonds split between Treasuries and MBS.
    23 Aug 2013, 01:02 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    MBS has nothing to do with financing the budget deficit, Paulo. Please, keep your facts straight.
    23 Aug 2013, 01:13 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    MI, it doesn't have to have anything to do with it.

     

    Any bond that the Fed buys is as good as gov debt, because all bonds have higher yields than gov debt and ultimately the Fed consolidates with the gov, so any asset it buys (with new printing) would theoretically reduce the "net debt" of the gov. And better still, if the asset yields more than gov debt, then not only would it reduce net debt, but also service debt in excess of the amounts bought.
    23 Aug 2013, 01:19 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo, You had earlier mentioned that "the FED is buying amounts that EXCEED the net issuance needed to finance the deficit". I merely pointed out that it is not true. The Fed is buying about ~70% of new issuance. That's all, really. I have no interest in engaging you in a nonsensical debate where you try to prove that MBS now count as Treasuries.
    23 Aug 2013, 01:41 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    You fail to consider the MBS amounts which the Fed is also buying. As I said, one could even consider that $1 in MBS > $1 in treasuries because of the higher yield.

     

    If you find it nonsensical, then that's your problem. I explained why it is not: because the Fed for all purposes consolidates with the gov (only a small and fixed part of its profitability goes to its private shareholders, the rest goes to the gov)
    23 Aug 2013, 01:44 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    OK, I will try one last time and then I will give up.

     

    1. US spends more than it brings in as part of tax revenue.
    2. Hence US has a budget deficit.
    3. Hence the US Treasury issues debt to finance that deficit.
    4. Such debt is bought by many parties, private and Govt, and the US Fed.
    5. Right now the US Fed is buying about 70% of the amount the Treasury is issuing.

     

    On another note, the Fed can be buying whatever the heck it wants. It can buy gold. It can buy foreign bonds. It can buy MBS. If it wants to, it can buy stocks. All profits from that goes to the Treasury. But that doesn't mean such trades have anything to do with financing the budget deficit.

     

    If you disagree, then you must also claim that when the Fed buys Euro denominated govt bonds - which it does - then it must be financing the US budget deficit, when in reality it is actually financing the budget deficit of the respecting EU country.

     

    Taking that logic to the extreme, you must also believe that the Japanese and the Chinese are actually financing their own budget deficits when they buy US bonds. Which would be completely nonsensical. You are stubborn (I have seen you with Amazon) and won't give up, however.

     

    So I am going to bow out now.
    23 Aug 2013, 01:53 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Look, you're a bit young but I'll give you a simple example and maybe you'll get it.

     

    Let's say that the Fed instead of buying MBS was simply printing USD to buy EUR.

     

    Would you understand that an entity that consolidates with the US gov, having in one side say 100 billion USD in new debt, and in the other, 100 billion in EUR equivalents, would essentially owe nothing on a net basis?

     

    Well, it's just the same with MBS.
    23 Aug 2013, 01:55 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo, I am likely much older than you.

     

    Before trying to give more examples which have nothing to do with budget deficits, answer me this. If the Fed buys, say, German Govt debt, whose budget deficit gets financed? Germany's, or USA's?
    23 Aug 2013, 02:07 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Germany AND the US, if the Fed makes the money from thin air. Germany because the Fed buys the paper, the US. because the Fed creates an asset that nets out the debt issued by the US gov.

     

    The example with the EUR was simpler. Surely you understood that.
    23 Aug 2013, 02:13 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Let me try another way. Let's say YOU are the gov. If I buy debt from you, certainly I'm financing you. What if I just give you MBS instead of buying debt from you?
    23 Aug 2013, 02:15 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    OK, now I am really done. This from a guy who just explained that when the Fed creates money out of thin air the two sided of its balance sheet are still, well, balanced.
    23 Aug 2013, 02:17 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    They're balanced because one side is currency, which you don't have to pay back.

     

    That's the "printed money" part.
    23 Aug 2013, 02:20 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Why am I doing this? This is worse than hitting my head on a concrete wall.

     

    OK, say there are only two countries in the world. One runs a budget surplus. the other runs a budget deficit. The former buys the debt of the latter.

     

    Who budget deficit is being financed? Note than only one country has a budget deficit in this case. The other has a surplus which is why it is buying the debt of the latter.

     

    Paulo, please, think. Please, don't say the country that has a budget surplus is getting its budget deficit financed. My head and that of anyone else reading this exchange will explode.

     

    Look man, if you are broke and I have lots of savings, and I lend you money, I am not financing any budget deficits on my part. It's just that simple. I am financing your budget deficit. Yes, I am making money out of interest income, but that's not the same as financing a budget deficit. By definition, if I have a surplus then I can't have a deficit and hence can't finance it by lending money.

     

    Similarly, only the country issuing the debt gets its budget deficit financed, and not the one that buys the debt.
    23 Aug 2013, 02:25 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    If you buy it with your surplus, only the country selling the debt is being financed.

     

    If you buy it with newly printed money, in practice BOTH are being financed. One because it sells the debt, the other because it is creating assets out of thin air. (obviously it won't be financing a deficit since it doesn't have one - but that's highly irrelevant here and just shows that you created a poor metaphor)
    23 Aug 2013, 02:28 PM Reply Like
  • Rock228
    , contributor
    Comments (548) | Send Message
     
    MI- I think I know what Paulo is saying.

     

    Paulo - Why doesn't the Fed just buy up $17 Trillion in assets with yields higher than the average yield of government debt and we can run a budget surplus ; )
    23 Aug 2013, 02:29 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo, Paulo, Paulo. This is the basics of monetary theory taught to econ undergrads. You do not create assets by printing money. Repeat that after me. Otherwise all countries could create assets by printing money and become infinitely rich.
    23 Aug 2013, 02:30 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Who knows where it might end up, Rock. Apparently Germany during the Weimar hyperinflation didn't have much debt precisely because it printed so much.

     

    Were the U.S. to remain in its present course, and it too would end up having little debt in the public's hands.

     

    (in your example, it might not wipe out the deficit entirely, but it would unquestionably wipe out the debt's service costs)
    23 Aug 2013, 02:31 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Rock, I know very well what Paulo has in mind. He is saying that the Fed increases the money supply whether it buys Treasuries or MBS. That is correct. But that's what he has in mind. What he is saying is that by buying MBS the Fed is financing the US budget deficit. That is nonsense. The Fed is financing the budget deficit, if you will, of ordinary Americans, by buying MBS. That has nothing to do with the Federal budget deficit. But he is stubborn, he said something once and he will never back away from it.
    23 Aug 2013, 02:34 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    Paulo,

     

    Clearly you don't understand how the Fed is organized. The assets of the Fed are NOT the assets of the US government.
    23 Aug 2013, 02:36 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Pendragon, that's what it SEEMS like, but the Fed is, in practice, part of the gov. The private shareholders get a fixed return on their Fed shareholdings and the gov get everything above that, so in practice the Fed is, indeed, part of the gov.
    23 Aug 2013, 02:39 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    It has everything to do with the Federal budget, MI. The Fed sends the gov its excess profits, which are large when it's buying MBS and just paying a symbolic 0.25% on so on the reserves it makes from thin air.

     

    So each $1 billion that the gov issues in debt is more than compensated by each $1 billion the Fed buys in MBS ...
    23 Aug 2013, 02:41 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    "So each $1 billion that the gov issues in debt is more than compensated by each $1 billion the Fed buys in MBS ... "

     

    So, are you actually claiming that when the government spends $1 billion more than it has, that is financed by the Fed spending a $1 billion?

     

    Not so good at the math are you Paulo? You can't balance your books when you spend more than you take in by spending even MORE money. And you still have it wrong, the Fed assets and spending are NOT part of the government budget.
    23 Aug 2013, 02:55 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    Pendragon, let me try another way. Let's say the gov issues $1 billion at 3%. Then the Fed buys $1 billion of MBS at 5.25%. What this roughly means is that the Fed will send the gov interest of (5.25%-0.25%=5.00%) on $1 billion, so the gov will, for that $1 billion debt, have costs of ... ahhh -2%. That's "minus" two percent.

     

    Take a look at this:
    http://econ.st/10pSdwY
    23 Aug 2013, 02:58 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Paulo, Let's say the US Govt had a budget surplus instead of a budget deficit, and no past debt either. Let's say it still issued $1B in Treasuries for 1%, because, well, why not? There is no rule against the Treasury issuing debt when there is a budget surplus. Now, let's say the Fed went and bought $1B of MBS at 5.25%, and paid 5% to the US Govt. So the Govt is now net positive by 2%.

     

    Was the Govt's non-existent budget deficit serviced?
    23 Aug 2013, 03:08 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    What's serviced is the debt, not the "budget deficit".
    23 Aug 2013, 03:12 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    Paulo,

     

    That is yet another new claim. So do you always change your claims when they get beat?
    23 Aug 2013, 03:12 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17167) | Send Message
     
    It's not a new claim, it's the reason why buying MBS is even more powerful than buying treasuries in terms of impact. And indeed, even when buying treasuries the Fed went for the highest coupons first for a reason.
    23 Aug 2013, 03:14 PM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    "What's serviced is the debt, not the "budget deficit". "

     

    And there you are right. Finally, I got you to say the correct thing. If the Fed makes money by buying MBS, or playing poker, or whatever, all those profits go to service the US debt. If the USA didn't have any debt, that would simply be more money for the Govt to spend.

     

    But that has nothing to do with the budget deficit, whether or not there is one. The Fed only finances the budget deficit when it buys Treasuries.

     

    Thank you for finally, finally, understanding the fault in your logic.
    23 Aug 2013, 03:16 PM Reply Like
  • NLTInvestor
    , contributor
    Comments (135) | Send Message
     
    markets stupid.
    21 Aug 2013, 02:09 PM Reply Like
  • vanebfbc
    , contributor
    Comments (73) | Send Message
     
    This is totally expected way before the minutes. Still, it's funny how the market overreact to FED all the time.
    21 Aug 2013, 02:11 PM Reply Like
  • NLTInvestor
    , contributor
    Comments (135) | Send Message
     
    i think its retarded how market over reacts. spx -12 and now back to -6. seems like a natural occurrence now. ALWAYS overreacts to tapering talk
    21 Aug 2013, 02:13 PM Reply Like
  • PendragonY
    , contributor
    Comments (4744) | Send Message
     
    And now the market is all like, wait didn't we already know all this?
    21 Aug 2013, 02:16 PM Reply Like
  • db313706
    , contributor
    Comments (168) | Send Message
     
    Okay everyone, party's over. Now I'm not saying you've all gotta go home, but you can't stay here any more.
    21 Aug 2013, 02:17 PM Reply Like
  • caupachow
    , contributor
    Comments (309) | Send Message
     
    don't believe anything what you read and only half of what you see. the fed will not stop QE anytime soon (and I mean tapering too). Next month they will find a way to keep it going "a little longer" until economy is on "more stable footing." this time next year there will be $185 billion a month bond purchasing by the fed.
    21 Aug 2013, 02:24 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    I think that is nonsense. Credibility is everything to the Fed.
    21 Aug 2013, 02:34 PM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    Like when they said they'd be getting rid of ZIRP by 2010?
    21 Aug 2013, 03:29 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    They appropriately caveated it.

     

    The US economy did 2.8% last year with a slump in the 4th quarter. Since then real GDP growth has accelerated with the third quarter close to 3%. That justifies tapering.

     

    A lot of you are excessively cynical. May be because cynicism doesn't any real thought.
    21 Aug 2013, 04:19 PM Reply Like
  • caupachow
    , contributor
    Comments (309) | Send Message
     
    Yes AIP, the fed has tons of credibility, almost as much as the current administration does.
    21 Aug 2013, 05:31 PM Reply Like
  • cowboy4576
    , contributor
    Comments (186) | Send Message
     
    Didn't the Fed say numerous times that they would not even begin tapering until unemployment came down to 6.5%?
    21 Aug 2013, 05:50 PM Reply Like
  • rungrandpa
    , contributor
    Comments (198) | Send Message
     
    In addition, Bernanke will be gone so depends on who takes over.
    21 Aug 2013, 06:11 PM Reply Like
  • mobyss
    , contributor
    Comments (1792) | Send Message
     
    What a whipsaw! Is bad news now good news, or vice versa? Taper or not, up or down - what is going on?
    21 Aug 2013, 02:40 PM Reply Like
  • buyandhold???
    , contributor
    Comments (795) | Send Message
     
    If you really believe they're gonna taper and reveal the "real economy" I have oceanfront property in arizona id like to sell you.

     

    They can talk all they want about how they'd like to taper but the reality is, it's not ACTUALLY GOING TO HAPPEN. They've been talking about it forever and still havent, why? Well bc seems most of the new jobs this year are part time, 1 in 6 are on food stamps, and frankly companies are reducing hours for existing workers. Ps did anyone see UPS drop spouses healthcare today? America's economy is in the toilet, stock market is great bc most companies are generating tons of income abroad, we are only 325 million people in a world of over 6 billion, we're not as important as we think we are.

     

    The fed has to print bc our debt is impossible to service at higher rates, and that's just reality, the taper would still mean printing $65B/month hardly time to say the sky is falling but I don't even see that reduction and if anything, I see an increase coming. The big guys are loving the fat profits, and by the time it all sours all these politicians will be on the beach in st tropez enjoying life so nothing matters to them but the 2014 elections and masking our REAL ECONOMY
    21 Aug 2013, 03:36 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    How much do you want wager? They will taper. It is inevitable and resistance is futile.
    21 Aug 2013, 04:19 PM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    What constitutes a true "taper" though? $5 billion off $85 billion wouldn't count, in my book. If they cut back to $50 billion a month, I'll give them a little credit. I just don't see it....

     

    10 year approaching 3% today, by the way....
    22 Aug 2013, 08:28 AM Reply Like
  • one base
    , contributor
    Comments (36) | Send Message
     
    Should be reassuring for investors to know that Wall Street confidence stands on a solid foundation of obfuscating Fed talk
    21 Aug 2013, 03:37 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (10900) | Send Message
     
    Question, how will Fannie and Freddie liquidate their bonds without QE because they are a toxic mess waiting to happen when housing going down and everyone knows it? How will the US government auction off their debt since the Federal Reserve buys 20% of all long term US Treasuries? Will the US be like the people wanting payday loans and short term finance everything because we can't get a real loan? And even then, is there even enough demand for short term bonds if the Federal Reserve auctions the entire US debt year to year?

     

    The issue of ending QE is much greater than higher interest rates and stopping bond purchasers as one may think by listening to the Federal Reserve meeting. They know it, foreign governments know it, perhaps they only wish we were too stupid not to know why governments are dumping US Treasuries, the dollar is weakening, there's huge hype trying to get people to buy houses at higher interest rates, and commodities prices are headed back up.
    21 Aug 2013, 03:54 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Housing is not going down. That is your first error. Look at today's sales report. And stop trying to rationalize your prejudices with talk about how higher interest rates will key the recovery. Any look at the data suggests the opposite. Interest rates can rise a lot with harming demand for housing. Look at the 50s and 60s.
    21 Aug 2013, 04:21 PM Reply Like
  • june1234
    , contributor
    Comments (2343) | Send Message
     
    The gauge for loans on new home purchases, considered a leading indicator, fell 5.4% last week . Mtg Apps have crashed since May, off more than 50%, -4.6% last week, -4.7% week before, mostly refis, less savings for those consumers less cash deployed in consumer driven economy. Wells Fargo just announced 2300 layoffs in mtg division. JPM warned of big hit to mtg revenues going forward Most of the job creation this yr has been part time; that ain't going to drive home prices. Bond markets got the tapering message back in May, stocks haven't yet. 3% GDP growth is not good for over leveraged under-insured debt markets
    21 Aug 2013, 05:49 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (10900) | Send Message
     
    The summer demand is cooling off, the housing rebound is not that strong, interest rates are rising because of rising US Treasuries not economic progress, and today is not the 50-60's which benefitted a lot because the US was dominant after WWII and we had precious metals backed money.
    21 Aug 2013, 06:47 PM Reply Like
  • buyandhold???
    , contributor
    Comments (795) | Send Message
     
    yea housing isn't going down......50% of homes were paid for in cash...does that sound like your average joe american or the rich people buying up everything? Americans, the average ones at least, are in a world of hurt, only rich people are doing well. Im not complaining Im making alot of money these days, but im not your average joe
    22 Aug 2013, 12:20 AM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (10900) | Send Message
     
    That is not a good sign it's a bad sign. That means buying is being done by flippers just like in 2007 before the crash. They are not long term holders unless they get burned. Their buying is no indicator of real housing demand or health, just hot money speculation. Ask any real estate broker and he'll say the same thing.
    22 Aug 2013, 01:15 AM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    Flippers buy housing in cash?

     

    The things you learn on SA ...
    22 Aug 2013, 01:26 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    You're wrong. Applications for loans to purchase housing were up 1%. It was refinancing that fell sharply as expected.

     

    A lot of you are just looking for data to confirm your prejudices. This is obvious since any scrutiny of the data would focus not on total loans, but loans for purchases.
    22 Aug 2013, 06:52 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Wrong. Summer demand has been unusually strong as yesterday's report clearly illustrates.

     

    You claim to work for a hedge fund. How about studying the economic data?
    22 Aug 2013, 06:53 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Wrong again. The figure for wholesale purchases isn't close to 50% and the buyers are long term. They are looking for rental income.

     

    Again, do you ever look at the data?
    22 Aug 2013, 06:54 AM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    If hedge funds looked at data 90% of them wouldn't trail the market. They would have then shut down all trading and bought the SPY ETF. To ask a hedge fund guy to look at data is like asking a faith healer to study medicine.
    22 Aug 2013, 02:10 PM Reply Like
  • CerpherJoe
    , contributor
    Comments (32) | Send Message
     
    Whoa! Watch it. That goal post is moving over there!

     

    "A few participants, while comfortable with the plan, stressed the need to avoid putting too much emphasis on the 7 percent value for the unemployment rate, which they saw only as illustrative of conditions that could obtain at the time when the asset purchases are completed"
    21 Aug 2013, 04:26 PM Reply Like
  • cowboy4576
    , contributor
    Comments (186) | Send Message
     
    No tapering until unemployment gets down to 6.5%. What is the rate now? Last time I did a rough estimate, it looked like at the rate it's going down, it would still be a year to 18 months before the tapering would even begin.
    21 Aug 2013, 06:31 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (1988) | Send Message
     
    Muted because of being frozen like a deer staring at the glaring headlights?
    21 Aug 2013, 07:04 PM Reply Like
  • buyandhold???
    , contributor
    Comments (795) | Send Message
     
    Unemployment at 6.5-7%?? That is a pipe dream, i know we love to skew numbers and all sorts of stuff to make it look like barry's policies are working but the real unemployment number is more like 20%. I run a family owned chain of nearly 40 gas stations and I can tell you everytime I put a job listing online I get 60-100 applications within the week.....for a cashier job....people with college degrees and other qualifications can't find work and are willing to settle for this

     

    It's very sad and bleak out there, im just thankful to be doing well and saving and investing for the future, but many aren't too fortunate today I don't care what numbers wall st or the president wanna spit out. Our inflation is wayyyy over 2% but we don't wanna give the real number bc people would freak out.

     

    The united states is like a boxer in a fight, we are beaten up and refuse to go down so we do everything in our power to bash other economies to make us look better....we say china isn't growing....when they are at 7% in a bad year, while we can't even grow at 2% in a good year....yet they're in trouble? I don't see china $17 trillion in debt with unfunded liabilities out the wazoo....all i see are a few empty ghost towns that are paid for without the possibility of default crippling their booming economy. What I see here is social security,obamacare,wel... and much more that has no chance of being paid for bc the costs are going to exceed our GDP soon but yes.....we're not in trouble our stock market is booming!!! Our market is booming bc most companies are multi-national.....not bc of the amazing united states.

     

    We are such a media driven society it's sad, we believe all they tell us. This fed taper talk has driven the market nuts recently when in reality there is just no way we are anywhere near our original taper goals, but hey that wouldn't sell pricey ad slots so we sell doom and gloom to get ratings.

     

    No way bernanke tarnishes his legacy, if we taper its on summers or yellen
    22 Aug 2013, 12:26 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    The United States has the strongest economy in the developed world.
    22 Aug 2013, 06:56 AM Reply Like
  • Kyle10
    , contributor
    Comments (372) | Send Message
     
    Really? I thought strong economies usually produced things instead of accumulating debt to consume. Not sure what I was thinking.
    22 Aug 2013, 09:16 AM Reply Like
  • Macro Investor
    , contributor
    Comments (7083) | Send Message
     
    US has the higher GDP per capita of the G7 nations except for Canada. You still think USA is not producing things?
    22 Aug 2013, 02:11 PM Reply Like
  • peredina
    , contributor
    Comments (30) | Send Message
     
    Grow up.
    22 Aug 2013, 08:19 PM Reply Like
  • sfphoto
    , contributor
    Comments (666) | Send Message
     
    To taper or not to taper, that is the question. Absolutely no question the Fed HAS to begin tapering before the Gordon Gekkos of the world become too addicted to Bernanke's QEs. And just like opium, unlimited QEs can induce temporary madness leading to market breakdowns.

     

    My bet: the Fed WILL begin tapering. The only question now is: when to begin and by how much. In the meantime, between greed and fear, markets will react violently to each passing day of the impeding end of the four-year old QE-induced bull run.
    22 Aug 2013, 12:58 AM Reply Like
  • Kyle10
    , contributor
    Comments (372) | Send Message
     
    "And just like opium, unlimited QEs can induce temporary madness leading to market breakdowns."

     

    How about this: just like opium, you need a higher and higher dose to stay high. The Fed will end up INCREASING QE at some point, not decreasing it. Any tapering would just sow the seeds for even more QE later on as the phony economy would be exposed.

     

    The real question is not about tapering, but rather what excuse will they use to avoid tapering? My bet is on the deflation boogeyman.
    22 Aug 2013, 09:20 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    Apparently you've had it 'wrong" for quite some time.. why should anyone listen now ?

     

    Perhaps one needs to take a look in the mirror than blame the bearded man behind the curtain for their own mistakes..
    22 Aug 2013, 10:07 AM Reply Like
  • sfphoto
    , contributor
    Comments (666) | Send Message
     
    There are other alternative assets that one can invest their cash aside from the Fed-induced equity bull run, such as real-estate. And indeed, roughly half of all housing purchases are now being paid for in cash by investors looking for tangible rather than just paper assets. Just because one is skeptical of the four-year old equity bull run doesn't make one "wrong". It only means investors (as opposed to speculators) are just wary of Wall Street's casino, driven in large part by Bernanke's chips.

     

    To argue that investors who have remained in the sidelines are "wrong" and thus should jump into Wall Street's casino where the rules of the game are rigged in favor of the Big Boys is sheer non-sense.
    22 Aug 2013, 05:01 PM Reply Like
  • peredina
    , contributor
    Comments (30) | Send Message
     
    You too.
    22 Aug 2013, 08:20 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4087) | Send Message
     
    SF,
    The "one" that i refer to are not just "skeptical" now , they have been incorrect in their market rhetoric for over 3 years. No just today.

     

    Wall st "speculators" ,? now you tell us to "Play" around in the real estate game as an alternative ? Now that is sheer nonsense.

     

    Yes the people who lament about their equity exposure (along with the frustrated bears) have obsessed over the fed and their inactions now say the game is "rigged" Funny how its not rigged when the market goes down,, -- Its only "rigged" when they are "wrong" in their assessment... Today , yesterday and 3 + years ago ..

     

    Enjoy !
    23 Aug 2013, 08:43 AM Reply Like
  • sfphoto
    , contributor
    Comments (666) | Send Message
     
    @Fear&Greedtrader:

     

    I suggest you step out more often so you could see for yourself why investors (including foreign funds) are buying U.S. real-estate for 1) historically low valuations and 2) rental income. And San Francisco, where I live, is testament to investor's cash flowing into real-estate.

     

    Compare that to the more than US$1 TRILLION debt incurred by U.S.hedge funds in creating the four-year old bull run in the U.S. stock market. Now that's what I would call speculation.

     

    Anway, the Fed should be credited with engineering the housing recovery by lowering mortage rates through the monthly MBS purchases. But even there, investors know a good deal when they see one. And that's why HALF of housing purchases are now made in CASH.

     

    Thanks for your reply. And good luck!
    23 Aug 2013, 08:55 AM Reply Like
DJIA (DIA) S&P 500 (SPY)