Ben Bernanke didn’t taper today and stocks soared. Most people began to whisper numbers that were floated in the media but were never ‘leaked’ by the FOMC or announced in news conferences by the Fed Chairman (which are being held for the first time ever under Bernanke’s tenure). In essence, the numbers 10 billion, 15 billion, mortgaged backed vs……. were not part of the essential 5 steps of Fed signaling one should expect before a complete shift in policy. (I won’t explain them.)
Here’s 5 reasons why I believed the Fed would continue purchasing assets, known as Quantitative Easing or QE in September 2013:
- The Fed was exceptionally quiet – no Fed officials throwing out numbers.
- Ben Bernanke – didn’t leak numbers during a press conference.
- No press leaks of a confirmed number we all knew we should be working with via our ‘favorite sources’— this keeps markets in check.
- No real skepticism left unabated that a supposed taper would occur — everyone was thinking a taper was highly probable – thus making a virtual taper occur…. this is actually good Fed policy in action.
- Horrible economic data and lack of future credibility. Anything above 6.5 percent unemployment, pegged by the Fed (for the first time ever) – underestimates the situation 5 years ago where risk aversion was necessary to induce. Non-farm payrolls were way below my estimate and the 6 month moving average. The housing market was clobbered since the FOMC suggested tapering. I’ve even gone as far as to suggest the Fed may not taper this year and with the wrangling in D.C., this looks possible. The President is more than willing to gamble on government shutdowns in what would otherwise be known as a depression if a generational demographic shift wasn’t unnaturally lowering the labor-force participation rate. This has hampered growth for the last few years as Republican ‘posturing’ has worked to keep Mr. Obama from economically compromising on behalf of the — ‘the people’. Political economy uncertainty is back to its highest-Obama levels again leading to speeches on the subject ……..just about anytime now………
That’s my shortlist.
I have been clear the economy doesn’t warrant a taper for several weeks – and on my social media assets….. @torycapital @celestinechukumba on Twitter, Stocktwits and on the Facebook Page. And If you’ve been here before, you were well positioned. Individual Fed decisions can be tricky but signaling rules shouldn’t change for some time to come.
The S&P 500 gapped up in the last 5 sessions twice without retreating, buyers had the advantage before the announcement. If follow-through occurs the market could continue to go higher. It seems like institutions are setting up for a strong 2013 end which could make buying now advantageous on any weakness from hereon in until 2014. Stay tuned for any changes in sentiment.