To Taper Or Not To Taper...Is That the Only Question?

87
Tue, Aug 20, 2013 - 7:04pm

Tomorrow at 2pm the Fed issue's it's minutes for the July meeting and we are assured there will be some serious MOPE and economic psych-ops as the Fed will likely try to signal that Wall Street needs to break it's liquidly habit-when it tapers or I like to call taper- operation QEDerma-patch. Ok, maybe that's a stinker.

We are already seeing the reverberations of the mere threat of tapering in Asian markets as 20 of the biggest emerging market currencies took a significant hit and most notably the Indian Rupee hit successive record lows. So how does a crashing Indian Rupee effect us?

A precipitous fall in the value of the rupee will create a sell off in Indian assets which will likely find a home in perceived safer havens like the US Dollar and possibly US equities. Remember India is one of 5 of the BRICS countries and with China already experiencing slower growth, India exports have taken a nose dive and emerging markets could find themselves in a mess creating a bigger global financial pickle.

But Will He Really Do It?

Well, we sure as heck have an idea what he'll say based off his previous taper tantrums. He'll remark on the astounding recovery in the markets since the inception of QE with the stock market up 20% since January despite a slow recovery. As usual, the report will contain some discussion of the list of economic factors that will play into their September decision including whether or not there has been any improvement in labor markets. Watch out for the release of the the initial US jobless claims on Thursday.

Despite whatever rhetoric is contained in those reports, Bernanke knows what you know. If he really tapers, he'll throw the US and global economy into a tail spin. The mere mention of taper has interest rates rising and the actual act of tapering will be bad. Really bad! And what does the Fed do to get us out of a recession? It adds more liquidity to the market. A vicious circle. Little ole me realizes that and so does the Bernanke. Does he have any other options??

Ok, here is where the whole taper/not taper scenario gets a little messy. I'd suggest the issue is not as black and white as some are suggesting. And folks, please realize this is all speculation for I can't read into the future but I think there is some information that you might want to consider. The comment forum below is the place you provide your own speculations or politely raise counter arguments to mine. I'm open to suggestions

Story line 1. The Fed Mopes us to death and finds reasons in September to keep the QE going.

Story line 2. He tapers back the QE as promised and throws the economy into a deep recession.

Story line 3. HINT What has Santa been talking about all summer?

Consider another factor in this whole taper mess, and that is the mandate which the Fed receives from the BIS. And you thought the Fed was accountable to no one? Briefly, The Swiss bank of International Settlement is a consortium of Central Banks that issues "guidance" and that's putting it mildly to all Central Banks. It is the Central Bank of Central banks that is it's own sovereign entity and is accountable to nobody. NOBODY. Do they have any say in the matter of QE? You betcha!

Here is a June article by Investment weekly discussing the warning BIS issued to the Fed that a spike in the bond yields could trigger a global financial crisis.

https://www.investmentweek.co.uk/investment-week/news/2276792/warning-of...

Here are some pertinent quotes from the article to consider.

  • "It warned losses could range from 15% to 35% of GDP in the UK, France, Italy and Japan and even greater damage in a number of other countries."
  • "Such a big upward move can happen relatively fast," BIS said, referencing the 1994 crash.
  • "However, BIS said authorities must still proceed with monetary tightening regardless of these bond worries, warning QE and zero interest rates are already doing more harm than good, according to the Telegraph. The warning from BIS comes after the US
  • "Federal Reserve set off the most dramatic spike in US borrowing costs for over a decade by hinting at an early exit from quantitative easing"

Allow me to summarize. QE is not working. It's a failure. The economy has NOT recovered. We have given you a mandate to stimulate employment and stabilize prices. It hasn't worked. Continued QE could result in dire consequences. Stopping QE could result in dire consequences with a rise in bonds. Get your economy back in gear and start tapering QE and deal with rise in bond rates.

If you want to read the original document issued by the Bank of International Settlement back in June issuing the Fed its mandate, here you go.

https://www.bis.org/publ/arpdf/ar2013e1.pdf

Allow me to once again highlight a couple more points. I highly recommend you read these carefully.

"Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy"

"Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilization role, allowing others to do the hard but essential work of adjustment.

"Regulators have to adapt the rules to a financial system that is becoming increasingly interconnected and complex and ensure that banks have sufficient capital and liquidity buffers to match the associated risks."

"How can central banks encourage those responsible for structural adjustment to implement reforms? How can they avoid making the economy too dependent on monetary stimulus? When is the right time for them to pull back
from their expansionary policies? And in pulling back, how can they avoid sparking a sharp rise in bond yields? It is time for monetary policy to begin answering these questions."

So what exactly is the BIS saying Green Lantern? The fed will really taper? Well. Yes, No and Maybe. The fed will have to save face and tell the markets that it is still looking to taper. That's the near term plan as they continue to buy just a little more time. But the masters, masters' are growing impatient.

But time for what Lantern? If you read carefully, thee buzz words were "stabilization" and "adjustments" So if money stimulus alone cannot "stabilize" or make the proper "adjustments" What will? If you said bail-ins, you guessed right. As I mentioned in my last post, "the bail-in model is based on an agreement between the Bank of International Settlement (there they are again) and endorsed at a 2011 G 20 summit."

The same people who wrote the bail-in model, are telling the Fed, it ain't working and it's time to stabilize and do it sooner rather than later.

Ok one other thought for your consideration? The Basil III regulatory framework (BIS Yet Again), banks must maintain assets as a buffer against a liquidity crisis. Without QE, the banks will not have adequate buffers. Hence the BIS warning of a dire crisis and telling the FED. Go Fix It!! I can only think of two ways of doing that. Continue QE against their masters wish and keep pretending there is a recovery. Or start bailing in.

Ok folks, remember, this is just little ole me thinking out loud. What do I know? I'm just a guy in a Green suit patrolling the Universe for common ordinary thugs!

About the Author

Green Lantern

  87 Comments

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Orange
Aug 21, 2013 - 11:16am

Oh, how times have changed

Russia slams UK’s ‘double standards’ over Guardian pressure

https://rt.com/news/russia-slams-uk-guardian-792/

¤
Aug 21, 2013 - 11:04am

Short Sellers Suffer Worst Losses In A Decade

Aug. 21, 2013, 9:01 a.m. EDT

Short sellers suffer worst losses in a decade

By Juliet Chung and Rob Barry

Short sellers are facing their worst losses in at least a decade, a Wall Street Journal analysis has found, as many of the rising stocks they bet against have only continued to soar.


Bloomberg News David Einhorn, left, and Bill Ackman.

That has stung several high-profile hedge-fund managers, including William Ackman andDavid Einhorn, who have placed prominent short bets.


In the Russell 3000 index, the 100 most heavily shorted stocks are sharply outperforming the average returns of stocks in the index, according to a Journal analysis of data provided by S&P Capital IQ. The shorted stocks are up by an average of 33.8% through Aug. 16, versus 18.3% for all stocks in the index.

RELATED: Top five performers among shorted stocks.

The gap between the performance of the most shorted shares — as measured by percentage of total shares outstanding at the beginning of the year — and the market as a whole is wider than it has been in at least a decade.

“If you just took hedge funds’ long positions, you would have pretty stellar performance,” said Greg Dowling of Fund Evaluation Group, a Cincinnati-based investment firm that invests client money in hedge funds. “It’s on the short side where guys have been getting killed.”

INTERACTIVE CHARTS: The most heavily shorted stocks.

Stock hedge funds are expected to outperform when markets fall but underperform during bull runs, since they generally hedge their bets by betting against stocks. But the gap is wider than usual. Through July, stock hedge funds returned 7.7% on average, compared with 19.6% by the Standard & Poor’s 500-stock index, including dividends....(cont. - 3 pages)

An expanded version of this report appears at WSJ.com.

https://www.marketwatch.com/story/short-sellers-suffer-worst-losses-in-a...

Mr. Fix
Aug 21, 2013 - 11:03am

Good morning DayStar, good to see you.

When I say there is no turning back on QE, I agree that it will continue until it doesn't, but at that point it does not continue, it will be irrelevant. The dollar will already have been destroyed as a viable means of exchange.

I firmly believe that is the desired intent. It's the only so-called “exit strategy” that I can see going into the future.

In the meantime, everything that supports a civil society is also being destroyed.

I think the dollar collapse is being carefully constructed so that there will be no way out even just the current administration were to be miraculously removed from power. Even in a hypothetical scenario whereby the "good guys" suddenly found a backbone, and the actual power to set things right, the damage will have been too severe.

I think we are well past the point of no return.

G 20 economic summit's are now irrelevant as far as the United States is concerned.

It appears to me that the rest of the world is working as quickly as possible to isolate the United States economy from its influence on the rest of the world, they have been forced into this position due to the United States government's ongoing undermining of the world's reserve currency. There are no options other than to replace it.

I have often tried to consider whether the dollar collapse would be a long drawn out process, or more of a overnight event triggered by a predetermined false flag.

I find it highly likely that there will be a overnight collapse that will have absolutely no warning, other than what we have already seen.

War is a great distraction, and our current administrations best attempts to get us into one are becoming increasingly obvious to the rest of the world.

As we say,

“This will not end well”.

zman
Aug 21, 2013 - 11:02am

QE

The Fed may reduce and increase QE for years to come, it will be nothing more than a game.

Taper off $20 billion for 6 months, and then increase it $40 billion for another 12 months, the MOPE will go on for a long time.

There is no reason why the Fed, ECB, BOE, and BOJ will not increase their balance sheets to much higher levels in the years ahead. Maybe the balance sheet will be $7-8 trillion in the next 5 years, will it even matter?

Since there is no real inflation issue, the CB's have no worries about maintaining QE, if inflation started soaring, then they have big problems, but that hasn't happened!! Therefore, interest rates should not move too much higher, a 4% yield on a 30 year bond is attractive to many in this environment.

argent rampant
Aug 21, 2013 - 10:58am

Growing demand for solar silver

And this from the Market Oracle web site. From an article entitled Drivers for Silver Price Up Trend...

"One rapidly growing source of silver demand is in photovoltaic solar panels. Since 2000, silver consumption from this sector has risen by 50% annually. In 2002 silver usage for solar panels stood at one million ounces, but grew to 60 million ounces by 2011. But now a number of nations are make a strong push for solar-generated electricity. Japan last year announced it would pay utilities three times the rate for electricity generated by solar power. Now China has raised solar-generating capacity targets by 67% from previous levels, from a 21-gigawatt target in 2015 to a massive 35 gigawatts. It's now projected that demand from Japan and China alone will soak up nearly 11% of world mine supply."

https://www.marketoracle.co.uk/Article41924.html

¤
Aug 21, 2013 - 10:57am

SilverRunNW

Thanks for that chronological post above

Key Economic Events Week of 7/6

7/6 9:45 ET Markit Service PMI
7/6 10:00 ET ISM Service PMI
7/7 10:00 ET Job openings
7/9 8:30 ET Initial jobless claims
7/9 10:00 ET Wholesale inventories
7/10 8:30 ET PPI for June

DayStarMr. Fix
Aug 21, 2013 - 10:47am

RE: QE to infinity

Mr. Fix,

Good post and glad to read from you.

I also wanted to comment on the "We are going full bore QE to infinity, there is no turning back" comment. I believe this will be true until it isn't, like many other things about the economy. I believe that on the scheduled date that Ben or his anointed successor will step up to the plate, place one foot on the land and one foot on the sea and declare that QE will be no more and interest rates will go up. At that instant the economy will assume its planned trajectory into perdition. I have a niggling doubt about this regarding what's happening with the interest rates. These guys are not God, and they may possibly have stepped in it, and are now playing clean up trying to fix the mess they made. That conjecture may or may not be true and they may or may not be successful in stopping the rise of interest rates, but whether they succeed in stopping rising interest rates or not, one day, probably not too far away, the system, she go 'BOOM!'

DayStar

argent rampant
Aug 21, 2013 - 10:46am

Interesting little tidbit

In an article discussing yesterday's WH meeting of regulators, this little aside was mentioned. I was dumfounded! They actually made this a condition in his contract?! At any other level of government this would be patently and explicitly illegal.

{Another issue for Lew in his confirmation hearing was his employment contract with Citigroup. It provided a bonus guarantee based on the specific requirement that he leave the bank for a “high level position with the United States government or regulatory body.” Lew succeeded in meeting that outcome.}

entire article here:

https://wallstreetonparade.com/2013/08/what-was-really-behind-president-obama%E2%80%99s-meeting-with-wall-street-regulators/

SilverRunNW
Aug 21, 2013 - 10:44am

S&P 500 % Change and GLD % Change on FOMC Release Dates

Just for the fun of it.

Date S&P 500 % change GLD % change day before day of diff
7/10/2013 0.02 0.27% $ 120.62 $ 120.95 0.33
5/22/2013 -0.83 -0.71% $ 132.88 $ 131.94 -0.94
4/10/2013 1.22 -1.69% $ 153.34 $ 150.75 -2.59
2/20/2013 -1.24 -2.50% $ 155.33 $ 151.44 -3.89
1/3/2013 -0.21 -1.21% $ 163.17 $ 161.20 -1.97
11/14/2012 -1.39 0.02% $ 167.10 $ 167.14 0.04
10/4/2012 0.72 0.70% $ 172.41 $ 173.61 1.2
8/22/2012 0.02 1.08% $ 158.83 $ 160.54 1.71
7/11/2012 0 0.55% $ 152.15 $ 152.99 0.84
5/16/2012 -0.44 -0.19% $ 149.74 $ 149.46 -0.28
4/3/2012 -0.4 -1.87% $ 162.94 $ 159.89 -3.05
2/15/2012 -0.54 0.59% $ 167.12 $ 168.11 0.99
1/3/2012 1.55 2.59% $ 151.99 $ 155.92 3.93
11/22/2011 -0.41 1.11% $ 163.50 $ 165.31 1.81
10/12/2011 0.98 0.72% $ 162.10 $ 163.26 1.16
8/30/2011 0.23 3.00% $ 173.89 $ 179.10 5.21
7/12/2011 -0.44 0.78% $ 151.59 $ 152.77 1.18
5/18/2011 0.88 0.59% $ 144.74 $ 145.60 0.86
4/5/2011 -0.02 1.58% $ 139.84 $ 142.05 2.21
2/16/2011 0.63 0.10% $ 133.97 $ 134.10 0.13
1/4/2011 -0.13 -2.36% $ 138.00 $ 134.75 -3.25
11/23/2010 -1.43 0.70% $ 133.48 $ 134.41 0.93
10/12/2010 0.38 -0.25% $ 132.29 $ 131.96 -0.33
8/31/2010 0.04 0.97% $ 120.91 $ 122.08 1.17
7/14/2010 -0.02 -0.05% $ 118.36 $ 118.30 -0.06
5/19/2010 -0.51 -2.39% $ 119.49 $ 116.63 -2.86
4/6/2010 0.17 0.13% $ 110.89 $ 111.03 0.14
2/17/2010 0.42 -0.34% $ 109.62 $ 109.25 -0.37
1/6/2010 0.05 1.65% $ 109.70 $ 111.51 1.81
11/24/2009 -0.05 0.38% $ 114.29 $ 114.73 0.44
10/14/2009 1.75 -0.08% $ 104.26 $ 104.18 -0.08
9/2/2009 -0.33 2.44% $ 93.90 $ 96.19 2.29
7/15/2009 2.96 1.57% $ 90.81 $ 92.24 1.43
5/20/2009 -0.51 1.42% $ 90.96 $ 92.25 1.29
4/8/2009 1.18 -0.15% $ 86.74 $ 86.61 -0.13
2/18/2009 -0.1 1.53% $ 95.45 $ 96.91 1.46
1/6/2009 0.78 0.77% $ 84.48 $ 85.13 0.65
11/19/2008 -6.12 -0.34% $ 72.51 $ 72.26 -0.25
10/7/2008 -5.74 3.55% $ 84.28 $ 87.27 2.99
8/26/2008 0.37 0.37% $ 80.93 $ 81.23 0.3
7/16/2008 2.51 -1.80% $ 96.17 $ 94.44 -1.73
5/21/2008 -1.61 1.17% $ 90.90 $ 91.96 1.06
4/8/2008 -0.51 -0.90% $ 91.17 $ 90.35 -0.82
2/20/2008 0.83 1.81% $ 91.58 $ 93.24 1.66
SilverRunNW
Aug 21, 2013 - 10:43am

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Key Economic Events Week of 7/6

7/6 9:45 ET Markit Service PMI
7/6 10:00 ET ISM Service PMI
7/7 10:00 ET Job openings
7/9 8:30 ET Initial jobless claims
7/9 10:00 ET Wholesale inventories
7/10 8:30 ET PPI for June

Key Economic Events Week of 6/29

6/30 9:00 ET Case-Shiller home prices
6/30 9:45 ET Chicago PMI
6/30 10:00 ET Consumer Confidence
6/30 12:30 ET CGP and SSHW to Capitol Hill
7/1 8:15 ET ADP Employment
7/1 9:45 ET Markit Manu PMI
7/1 10:00 ET ISM Manu PMI
7/1 2:00 ET June FOMC minutes
7/2 8:30 ET BLSBS
7/2 10:00 ET Factory Orders

Key Economic Events Week of 6/22

6/22 8:30 ET Chicago Fed
6/22 10:00 ET Existing home sales
6/23 9:45 ET Markit flash PMIs for June
6/23 10:00 ET New home sales
6/25 8:30 ET Q1 GDP final guess
6/25 8:30 ET Durable Goods
6/26 8:30 ET Pers Inc and Spending
6/26 8:30 ET Core inflation

Key Economic Events Week of 6/15

6/16 8:30 ET Retail Sales
6/16 8:30 ET Cap Ute and Ind Prod
6/16 10:00 ET Chief Goon Powell US Senate
6/16 4:00 pm ET Goon Chlamydia speech
6/17 8:30 ET Housing Starts
6/17 12:00 ET Chief Goon Powell US House
6/18 8:30 ET Initial Jobless Claims
6/18 8:30 ET Philly Fed
6/19 8:30 ET Current Account Deficit
6/19 1:00 pm ET CGP and Mester conference

Key Economic Events Week of 6/8

6/9 10:00 ET Job openings
6/9 10:00 ET Wholesale inventories
6/10 8:30 ET CPI for May
6/10 2:00 ET FOMC Fedlines
6/10 2:30 ET CGP presser
6/11 8:30 ET Initial jobless claims
6/11 8:30 ET PPI for May
6/12 8:30 ET Import price index
6/12 10:00 ET Consumer sentiment

Key Economic Events Week of 5/25

5/26 8:30 ET Chicago Fed
5/26 10:00 ET Consumer Confidence
5/27 2:00 ET Fed Beige Book
5/28 8:30 ET Q2 GDP 2nd guess
5/28 8:30 ET Durable Goods
5/29 8:30 ET Pers Inc and Cons Spend
5/29 8:30 ET Core Inflation
5/29 9:45 ET Chicago PMI

Key Economic Events Week of 5/18

5/18 2:00 ET Goon Bostic speech
5/19 8:30 ET Housing starts
5/19 10:00 ET CGP and Mnuchin US Senate
5/20 10:00 ET Goon Bullard speech
5/20 2:00 ET April FOMC minutes
5/21 8:30 ET Philly Fed
5/21 9:45 ET Markit flash PMIs for May
5/21 10:00 ET Goon Williams speech
5/21 1:00 ET Goon Chlamydia speech
5/21 2:30 ET Chief Goon Powell speech

Key Economic Events Week of 5/11

5/11 12:00 ET Goon Bostic speech
5/11 12:30 ET Goon Evans speech
5/12 8:30 ET CPI
5/12 9:00 ET Goon Kashnkari speech
5/12 10:00 ET Goon Quarles speech
5/12 10:00 ET Goon Harker speech
5/12 5:00 ET Goon Mester speech
5/13 8:30 ET PPI
5/13 9:00 ET Chief Goon Powell speech
5/14 8:30 ET Initial jobless claims and import prices
5/14 1:00 ET Another Goon Kashnkari speech
5/14 6:00 ET Goon Kaplan speech
5/15 8:30 ET Retail Sales and Empire State index
5/15 9:15 ET Cap Ute and Ind Prod
5/15 10:00 ET Business Inventories

Key Economic Events Week of 5/4

5/4 10:00 ET Factory Orders
5/5 8:30 ET US Trade Deficit
5/5 9:45 ET Markit Service PMI
5/5 10:00 ET ISM Sevrice PMI
5/6 8:15 ET ADP jobs report
5/7 8:30 ET Productivity
5/8 8:30 ET BLSBS
5/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 4/27

4/28 8:30 ET Advance trade in goods
4/28 9:00 ET Case-Shiller home prices
4/29 8:30 ET Q1 GDP first guess
4/29 2:00 ET FOMC Fedlines
4/29 2:30 ET CGP presser
4/30 8:30 ET Pers Inc and Cons Spend
4/30 9:45 ET Chicago PMI
5/1 9:45 ET Markit Manu PMI
5/1 10:00 ET ISM Manu PMI

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