For one the F_E_D minutes said "Several members" wanted to end QE right at the June meeting, they also said that "Half (6) of the participants thought it was appropriate to end QE by the end of this year".
I wonder if those several are part of that half? If not, then it seems to me there's a clear majority that wants to end QE "BEFORE" the end of this year. Not that F_E_D guidance matters, but guidance said that tapering would begin 6 months before the actual end (if we assume 2013 is the end, we are already past the 6 month point).
Bernie on the other hand said from what I recall that "accommodative policy wasn't ending". Like I said back then, I expected Bernie to say something to take the rough edges off the minutes, but it seems the market took his statement to mean that QE was not ending any time soon, I pointed out he is one of 12 voting members of the F_O_M_C and not a dictator and that in my view, "Accommodative policy" is ambiguous, it's kind of like the political "Plausible deniability".
Accommodative policy is in place so long as the F_O_M_C doesn't raise rates, it doesn't mean they can't taper or outright end QE, I think Bernie put it out there and let the stock market take it how they wanted, but he certainly could easily say, "We're not raising rates, that's accommodative policy" even with QE ending in September.
In any case we can go back and for about data dependency, costs/risks/unintended consequences, semantics, play or words, etc.
What I got from the minutes and what I've got from the F_E_D since September 13th 2012 is that they've been looking for a way out, I've shared that with you many times well before the "Taper" talk even began. What I got from Bernie was he might have been delivering his message to another crowd, a bigger crowd, the bond market.
The bond market is quite a bit larger than the stock market so not everything out of his lips is for our consumption.
I usually don't like reading too much about other opinions unless there's fact and unfortunately the full article that started this debate is chock full of both, but myself and a couple of members are kicking this around, basically it goes like this...
"The pain that banks have experienced can best be seen in the following chart showing the latest update in "Net unrealized gains (losses) on available-for-sale securities" from the Fed's weekly H.8....
- For the first time since April 2011, unrealized gains in AFS portfolios among the entire US banking sector became losses, and
- The two month rate of loss creation in MTM exempt AFS portfolio soared to the highest in series history.
In this case I think we are very clearly talking about banks' holdings of treasuries and how the spike in yield (treasury prices move opposite yield) has sent their "Portfolios" to a loss among these unrealized gains in AFS.
Since this is mostly fact, the argument here is,
"Two months ago Ben Bernanke, using his trusty mouthpiece Jon Hilsenrath, floated a trial balloon that a tapering of bond purchases is coming, necessitated by the drop in gross US TSY issuance and lower deficit funding need (maintaining the status quo ante rate of monetization would lead to even more deliquification in the bond market as Bernanke soaked up even more high quality collateral from the market). What happened next was not quite what Bernanke expected: a surge in bond yields "
As I told you earlier, this is not a simple subject, it is not just the stock market, in fact it has more to do with the destruction in the prices of treasuries. I've heard some really good scenarios from members on the subject so I can't make a blanket statement, but it would seem to me, if you needed to "A" get the price of treasuries higher and "B" perhaps end QE for other reasons such as unintended consequences, a market bubble, backing out of policy (nightmare), etc...
THE SIMPLE ANSWER IS TO END QE, LET THE MARKET DROP AND WATCH THE FLOOD IN TO BONDS.
That's a very simple approach to a very complicated problem, but perhaps what Bernie was trying to do more than anything in his post minute Q&A is reassure the BOND market that the conventional guidance of a rate hike 6 months after QE ends is not at all in the cards or to be assumed, "Thus accommodative policy remains" and let the (stock) market take it however it wants for now.
In any case, we'll be looking at this more closely, unfortunately I have a board meeting in 30 minutes (1x a month).
AS ALWAYS, WHENEVER ANYTHING F_E_D / F_O_M_C COMES OUT, I WARN...
"Beware the knee-jerk effect", it's almost always there and it's almost always wrong.
Perhaps this is why I have been seeing interesting things in TLT that have me interested in it as a long. Lets face it, something changed very quickly as I showed this weekend, but as far as the bullish underlying tone in TLT I've been noticing, if after a carry trade is closed (which the AUD/JPY was closed by all appearances and opinion) that means the stocks purchased with the leverage were sold, SEE MY BREADTH CHARTS FOR 2013, and the last thing you'd do other than setting up shorts would be to move money to the Flight to Safety Trade", Treasuries....
Again, please don't take this as the start and end of a complicated scenario, but it's one we need to look at and I'm just throwing out some very obvious solutions that all have their own problems, every one will.
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