— The media wants you to believe that the tapering of quantitative easing is a big deal with a potential bad outcome (“if it bleeds, it leads”) … the exact opposite is the case.
— Covid Delta as a weapon of mass economic destruction … another media obsession … is this round two?
— Why the facts on the ground would seem to point in a different direction.
QE … the taper … why the fuss?
Frankly I cannot give you any reason not to taper Quantitative Easing, the Fed’s monthly $120 billion injection of fund into the banking system. I can think of a lot of reasons we should and that these reasons are very positive for the economy.
Foremost is we simply don’t need it. Q.E. (circa spring 2020) was an emergency measure taken on to deal with the pandemic brought on by Covid 19 and the ensuing shutdowns of economies around the world. That emergency ceased to be an emergency when the global economy started coming back on line last summer, this after Congress past a $2 trillion stimulus in the spring of 2020. That stimulus has been reinforced by the passage of $5 trillion in additional stimulus last December. The United States is awash in liquidity. If, quietly, the Fed ended Q.E. Monday morning no one would notice. The $6 billion in daily buys (half long-date treasuries, half mortgage-backed securities) is a drop in the bucket versus just the $200 billion plus that trades in the long-dated (7 years and longer) treasury market daily.
However, there are those, like CNBC’s Scott Wapner who are very concerned (for real or imagined reasons but mainly, I think, the profit motive). I am sure or I would hope his guest (Jeff Rosenberg, Sr. Portfolio Mgr, BlackRock) would have the same information that I have regarding the impact of tapering Q.E. Yet Rosenberg plays along with Wapner’s leading questions, all of which are designed to get the him to call for a bad outcome when Fed tapering begins. If Rosenberg cut to the chase and told Wapner that his concerns were invalid and that the economy would do great without it, he probably would not get invited to back even though that answer would be honest and forthright.
Bottom line: The taper is not a tightening of monetary policy. It is slowly reducing emergency stimulus the economy doesn’t require anymore. It is good news, period!
Covid Delta: A Weapon of Mass Economic Destruction
Covid 19 was a weapon of mass economic destruction until we figured it out. Covid Delta, even though it is a lot more transmissible and appears to be more harmful to younger, healthier populations, appears to also carry a “figured out” designation … i.e. we know what this bug can do and we know how to defend against it. I think most people are accepting the fact that Delta may not be our last roundup on the Covid trail. I might also point out that it is unlikely the science and scientists who brought us the vaccines with which we are currently protecting ourselves aren’t continually working on new vaccines as well as therapeutics to bring this beast to heel.
Despite recent market weakness the facts on the ground don’t seem to jibe with an economic slowdown
Most people and businesses have chosen to resume living with small constraints like masking, distancing and vaccinations. They are working remotely where they can, dining out, attending entertainment and sporting events and THEY ARE SHOPPING!
‘Kohl’s shares surge after earnings top estimates, retailer raises forecast as higher foot traffic drives sales”
And here’s a switch.
Is brick and mortar retail on the rebound?
Admittedly the first two headlines are reporting earnings that happened before we felt the full force of Delta. The number of cases that we are seeing today far outstrip those reported in the second quarter.. Having said that I would suggest you check out your local mall, favorite restaurant or sporting venue. In my neck of the woods you see masking and you see crowds.
There are about 330 million of us in the United States. According to Worldmeters.info, a vital statistics web site I use, the US has had 38.5 million confirmed cases of Covid 19 since records began being kept 18 months ago. That is approximately 11% of our total population. We have had 644,823 Covid-related deaths. The death toll amounts to less than 2/10ths of one percent of our population. This a small but not trivial number. Certainly the Covid 19 strain is not a trivial problem but given these statistics it is understandable why things are beginning to normalize. Given the amount of stimulus applied to the problem it is understandable why the US may enjoy a surprisingly strong economy for months ahead and maybe years going forward.
Despite what you read and hear in the media that negative message is not meant to help your bottom line. The tapering of QE and a Covid Delta induced economic slowdown seem to be overblown concerns designed to garner clicks and viewers. From my vantage point our secular bull market appears intact and priming for additional gains.
What’s your take?