China is growing. The ‘Dreaded Taper’ is growing. Several emerging market currencies are sinking and the media finally has things to obsess on after a very dull fourth quarter, where most of the popular indices (save the NASDAQ) have made new all-time highs.
One of the key points that has developed out of this bearish bill-of-particulars is today’s Fed decision to take an additional $10 billion per month from the Quantitative Easing program. In February, the Fed will only be buying $65 billion worth of Treasuries and agency mortgage backed securities (vs. $85 billion in December).
Now, common wisdom, pre-taper, was: ‘If you do this, rates will rise’. This clip from CNBC’s “Closing Bell” gives a taste of that point of view from two of my favorite (NOT) purveyors, Peter Schiff and “bad news bearer”, Jeff Cox. Incidentally, both claimed today’s taper action was not going to happen because the ‘economy was too weak’. I am not sure, based on their track records, why either gets any air time.
What’s wrong with tapering?
According to the bears, rates will go up, not only hurting our economy; but it would really be bad for emerging countries, weakening their currencies as our higher rates would draw funds to the dollar. Ergo, these countries would have to raise rates to counter our increase, thus weakening their economies. Voila! A world-wide downward spiral begins. Well, tapering is not tightening.
Low and behold, rates did not rise!!
The U.S. Treasury 10-year note closed at a 2.69% yield Wednesday, January 29, down from 2.88% December 18, 2013. Although I am certain that rates will go up over time, the taper of QE just may not be the trigger.
Having made this case, the market still went down today, and that downturn carried over to Asia, where the actual Chinese PMI was reported this evening at 49.5 (below 50 is considered a negative number). My take on this is that you should not allow the media’s read on these events to press your “Panic Button.” This may just be the normal correction that we have all been waiting for, not he end of the world.
Polite dinner conversation
I was out to dinner this weekend with friends. My friend Allen asked: “When will they stop talking about ‘the taper’?” My answer: “I don’t know.” It is hard to say because, even with rates down since the first (and now second) installment, they are still obsessing about it.
What do you think?
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Did you hear that the Olympics have a terror alert? That attacks are imminent? That there is weather issues for the Super Bowl? The networks will be extremely upset when the weather is nice this Sunday in NYC and the Olympics go off like the London Games did. Terror free. I also love the commercials on Fox News that are all fear driven. Unbelievably still selling Gold/Silver non-stop. But the one commercial that is amazing to me is the one that for $25, you can feed the people in Israel because they have been isolated from terrorism and hunger. No one has a conscience anymore.
I haven’t seen the one on CNBC yet about’feeding the hungry in Israel’, maybe because they have sold out all of their time to the erectile dysfunction and Cenegenics crowd.