Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

Oh Wait, Maybe the Taper is Back On?


The central bankers will never ever have enough. Bernanke said yesterday that rates will stay near zero even after a taper, which wasn’t supposed to happen now. But James Bullard, chairman of the St. Louis Fed, says that the data looks good – jobs growth is strong, unemployment is down. And when asked if the taper is on or off the table, he said that “a strong jobs report would increase the probability of a December taper”. (Drum roll please)

And then it came out that the Fed minutes have said that the taper has been extensively discussed, and they might taper in “one of it’s next few meetings”.

Many members stressed the data-dependent nature of the current asset purchase program, and some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings. A couple of members also commented that it would be important to continue laying the groundwork for such a reduction in pace through public statements and speeches, while emphasizing that the overall stance of monetary policy would remain highly accommodative as needed to meet the Committee’s objectives.

Okay so we’re tapering now? Markets fell some, and will likely fall more until Big Boy Ben comes in and says no, forget that, we’ll never taper in this lifetime. Or the next.

The current strategy seems to be:

  • Attempt to put rumour that maybe, just maybe, if the recovery seems to be on track, we must taper.
  • Find out that markets are bloody tanking and everyone’s panicking because you gave them a steroid and they hate it taken away.
  • Oh shit.
  • Okay, let’s shift goalposts and say that no particular data point will tell us that a recovery is complete and we need more time for this recovery to demonstrate it can stand. Or some obscure statement that includes “for the foreseeable future for an extended period of time”.
  • Market goes back up big time and there are Nobel prizes for various economists being exchanged.
  • Phew.
  • (A few months pass)
  • Okay, maybe we’re in stable territory.
  • Go back to bullet point #1.

This is so like the Indian RBI now. “We have 22 billion in swaps” says the RBI from the rooftops. Except reserves aren’t increasing, and volumes show that if the OMCs are taken off from the RBI’s crutch system and brought back into the market, this $22 billion will vanish fast. It’s a game of central-bank-chicken.

Impact: I think we open down tomorrow, but we might recover soon as dilutory statements will be made. However the taper is definitely on now, if not in December then in Feb/March. If this bull run was based on liquidity, note that the liquidity tap might just have to be turned off.

  • Mohit Satyanand says:

    I don’t know about dilutory, Deepak. Look at the surge in US 10 Y bond yields.

  • Leo says:

    i think this taper non taper is just a waste of time…the trend started in july 2012 accelerated in april may 2013 ….part of the cycles…now can we get 6% on 10 year US note .Whatever ben says bond mkt around the world are in for a shock.Bond mkts are much bigger than stocks.Think of suzlon stock price when it was not paying its debt.It is something like that with currencies and stock mkts and GOVT DEBTS

  • The purpose of stimulus is to continue postponing the problem till you remain in office and leave it to your successor to solve. Hence, taper is impossible during Bernanke’s term. Any meaningful taper is also unlikely with Yellen, since President Obama may not come on board the idea – and his successor is due only in 2017. But the next crash may come before that – not due to taper, but despite ‘no taper’ as yields shoot up in the secondary market. The U.S. bonds bubble is far far bigger than the equity bubble.

  • Guruprasad V says:

    US would have its stimulus for a decade. There won’t be any raise in interest rates for atleast a decade. Tapering might probably happen after couple of years, but not sure in this issue. Everyone works only with mouth but reality is different. US doesn’t seems to grow despite huge stimulus. Ofcourse Stock markets are different animal. People who write that US is not that bad simply refuses to accept that even after $5Trillions only inventory contribute to their GDP. US is still in pathetic situation.