Fed talks, the price of higher yields....the great roll back of tapering is about to begin....

The big push back from Fed is starting(See Dallas Fed comment below)---....

 

Fed loves to talk about price of their action - clearly they have their answer:

 

Forward guidance main premise is:.... market believe in the Fed guidance… - Reality? Clearly they don't! 

 

Fed will adress this in September 17/18 meeting with increased target & numbers a thing Yellen has been trying to get in place……

 

The EMG crisis (or really the extension of their collapsing current account surplus') will be catalyst/excuse for lowering tapering and then unwinding it in Q1/Q2 of next year. The EMG crisis will hurt Europe and Germany the most. The big Middle Income Trap for Asia will mean globally lower growth, less excess capital to re-invest in Europe & the US, and finally ultimately a much weaker US Dollar (terms of trade reaction)…..

 

Real rates and mortgages rates increases will be major headwind to the economy, but more so to pension and banks...the marginal cost of capital continues to rise through this cycle…….

 

The price of 100 bps rate increased will have severe impact (5,9 and 28% of GDP for US, Europe and Japan) according to one estimate by Natixis economist Patrick Artus in his report (which is a must read) : "Has the Japanese trap closed everywhere" : http://cib.natixis.com/flushdoc.aspx?id=71057

 

 

 

 

 

Conclusions:

 

We are seeing the beginning of the end for the mild recovery – next is a dramatic global lowering of growht outlook combined with the yearly national budget talks… (Low growth makes budget deficits bigger, much bigger…)

 

Both US and Germany headed for zero bound growth – Germany via export sector and US through abrupt stop to improvement in housing, consumer demand and employement (We believe participation rate is about to rise….) plus for both of them significant higher real rates in the real economy………

 

Buying 142.00 Dec calls here on Bunds.. Lottery ticket 17 ticks. Moving my portfolio to 80% bond into and after the FOMC. There could be one more major test of high and even new highs in equities as market realise we are getting more QE not less in 2014. Our models sees 2014 as testing year: low in growth, value and lack of reform….

 

Nice week-end,

 

Steen Jakobsen

 

 

Subject: Dallas Fed President Fisher Says Fed Must Ensure QE Doesn't Disrupt Financial Markets

 

Fisher Says Fed Must Ensure QE Doesn't Disrupt Financial Markets

2013-09-05 19:28:31.34 GMT

 

 

By Jeff Kearns and Thomas Black

 

Sept. 5 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher, who has opposed additional stimulus and votes on policy next year, said the Fed must ensure its bond buying program doesn't disrupt financial markets.

 

"We have to make sure that the actions we take are taking into consideration financial stability," Fisher said today in Dallas. "This is one of the arguments we had: If we go down this path, what will the cost be?"

 

Fisher spoke after the yield on the benchmark 10-year Treasury note climbed to a two-year high of 2.98 percent partly on speculation policy makers will decide to begin tapering $85 billion in monthly bond purchases at a Sept. 17-18 meeting.

 

The key question with asset purchases -- which have pushed up the Fed's balance sheet to $3.64 trillion -- "is preserving financial stability," Fisher said in response to an audience question after a speech to the Dallas Estate Planning Council.

 

He said he "lost the argument" last year on whether to push on with record easing.

 

"Now the question is, how do we put it to an end?" he said. "This doesn't go on forever."

 

The Fed has pledged for more than a year to press on with asset purchases until achieving sustainable gains in the labor market. The central bank announced a third round of quantitative easing in September 2012 to reduce longer-term interest rates, stoke economic growth and combat unemployment.

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