Taper Tantrum: Brace for Impact

Well they done did it. Another US$10 billion reduction in the level of monthly capital and credit fabrication. And right on cue, emerging markets are feeling the blood drain from their veins and their legs get weak. This is too much of a cutback on the drug that has been keeping Patient Earth alive for the last 4 years. She can’t take it. The carnage in G7 indices will be substantial in the days ahead. Gold has already leapt to another high. Could this be the catalyst that finally proves the point that keeping the Patient alive with non-stop drugs does not a healthy patient make? Or (and more likely, IMHO), will Janet’s planets realign in such a way that she doubles down on the soma flow to regain what is about to become lost?

Its a tough call, but the way economies in the developing regions have reacted is likely just a precursor of some extremely ugly side-effects of the withdrawal. Markets are conditioned now to understand, much like Pavolov’s dogs, that the word “taper” means “sell”.

Its going to be interesting, because if the Fed, now headed by Janet, doesn’t respond quickly, a momentum will manifest to the downside, and the longer they wait, the harder it will be to claw back to glorious index highs. These days, one has to deploy reverse reverse psychology (not just reverse), to comprehend the myriad possibilities as markets try to dupe investors and vice versa.

For instance, could it be that the dark forces behind the Fed have recognized that a little tapering might just induce enough of a market rout to justify the announcement of a much-amplified iteration of Quantitative Easing and interest rate stomping? I mean, its pretty obvious that the bulk of the quantitive bullshit is disappearing into the bank accounts of financial sector shareholders, and is doing nothing for the broader economy. Ergo, if the sense among the criminal elite is that they are indeed getting away with the fleecing of America before their very eyes (and why wouldn’t they?), then doesn’t it stand to reason that they would redouble the rate at which Wall Street stitches Main Street into a shroud?

One thing is certain. The decision to continue tapering is going to have a profound and rather forceful impact on markets now. Batten down the hatches, and all chickens and pigs to half rations until the Fed Teat is re-presented freshly laden with ersatz nourishment.

Janet Yelling: Is that a Target on my Back?

Janet’s first day on the job is officially Saturday as the new Chairman of the Federal Reserve is probably not going to be the Shining Moment of Glory she was likely told it would be. Ben’s timing in abandoning his post on the front line is now understandable and suggests that he actually does have a clue about the downward spiral the United States is locked in, even while the soma-induced metrics provide ample mis-cues so financial media dutifully parrots “recovery”.

According to the Fed’s Open Market Committee statement released today:
Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

Yes Janet, that is a target on your back, and yelling will do you no good.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
More Info...

[email protected]

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.