And part of the biggest reshuffle since 2004. let's start with the fed decision followthrough.
The word everybody expected that didn't get.
-- but didn't get.
Taper heavy or no taper appeared the exit strategy.
They really want to start the business of tapering.
I think we will see tapering in september.
Based upon its forecast of what it thinks is going to happen in a couple of years.
And this is incredibly uncertain and it wouldn't want to rock the boat.
The fed would help if they started to read normalize monetary policy and then the economy could withstand -- could stand on its own two legs.
At some point, the fed has to step back.
Bit tech about this for a while.
They had given a letter warning that they will do it.
Whether they pull the trigger not in september, it will be the data we get at the beginning of september with unemployment and the payroll growth.
Qe3 was instituted when the fed thought there was still significant downside risk to the outlook.
They don't think that is there anymore.
That is why they need to taper.
You have to go back to why they did qe3 in the first place.
That has eased in their minds and the risks of continuing quantitative easing -- it's a pretty tough getting -- it's a pretty tough thing getting out of quantitative any easing.
We'll see how it goes.
Everybody expected taper excepted this guy.
Last i checked, there are three more meetings this year.
Why september the month?
Oh, and this guy.
This is actually within our expectations.
But it doesn't matter.
We have knowledge of where the fed is today.
We have knowledge of where they want to be in mid-2014. there are a couple ways to get there.
But the difference between reducing bond buys in september versus defend -- versus defender -- versus december is a few million dollars.
It is not much.
I think it is the soft-pedaling behind the reasoning.
What do you mean by that, soft-pedaling?
If you go back to the january fomc minutes, they were reviewing the efficacy of bond buying as a policy tool to it is a gain -- it is a game of diminishing policy tools.
Ever since then, they haven't been talking about that.
There have been talking about, oh, it's the economy.
But if you are executing a policy that is not supporting the economy, what does it matter what the economic growth is whether that -- growth is in determining whether that is needed or not?
I was a little bit surprised them absolutely.
But i think we are being too hard on the fed and chairman bernanke.
Why is that?
The reason is that, number one, from the very beginning and the last time i was here i said we shouldn't be as agitated about the beginning of tapering as the markets seem to be.
The reason is that the fed said very clearly that one of two will happen.
We will either have a shower economy and we will pull back a little bit or we will have a continuance of the support until we have that stronger private economy.
And i think yesterday the fed had it set up that, if the economy was genuinely and incontrovertibly moving forward, they would taper.
And what they said yesterday, to me, is that we still have a highest of risk -- a bias of risk over the economy weakening and not strengthening and we will continue to hold our policy.
Fair enough . my view was that they would taper by about $10 billion to $15 billion, but i am not surprised that they don't do it for the simple reason that i think we are in qe unlimited.
The people at the fed are professors, academics.
They never worked a single life in the presence of ordering people and they don't understand that, if you print money, it benefits basically a handful of people may be.
Not even 5% of the population.
3% of the population.
People also need mortgages with their starting families.
A lot more people need to get out of their parents house and by their own.
He believed cars.
The cars on the road are 11.4 years old.
Those interest rates are being held down when the fed continues his cut of policy, no?
Well, on september 14, 2012, when the fed announced qe3 that was then extended into qe4 and now a sickly qe unlimited -- and now a sickly qe unlimited, the bond market had peaked out.
Interest rates -- and now basically qe unlimited, the bond market had the doubt.
At 1.3% on the 10-year present treasury.
Since then, they have doubled, thank you very much.
So rates are up.
Should the fed be concerned since last time?
What to the fed is concerned about is not wall street, not the markets, although they obviously wants that.
They are concerned about the real economy.
We have seen over the last few years that problems in the markets decline in the net worth of the household sector through great weakness in housing and the markets and seeps through the real economy.
I think the fed is basically saying that the real economy does not have enough self- sustaining private sector strength yet for us to be certain that we can pull away our support.
I think the worst thing for them would have been to taper, to have a somewhat weaker fall.
And there are some risks out there in the fall.
We will have even more contractionary fiscal policy.
And we have dysfunction in washington.
That's for sure.
So when will we see the fed taper its stimulus?
October is too early since they basically blamed the fiscal story on why they decided not to taper.
Then you have to ask yourself whether the same fed the wooden taper when given the opportunity by the market with very little cost involved is going to try to taper in the middle of the holiday shopping season and see what happens to the equity market and risk the derailment of a u.s. recovery.
The stereotype is there, the cliche, but it is true.
Is it a new kind of punch bowl or the old punch bowl?
They refilled the punch bowl, but everybody at the party is waiting in line at the bathroom.
So we don't need any more punch.
The problem is really this.
Adding out of quantitative easing is difficult if we know this because no one has ever gotten out of quantitative easing.
This was the debt out of jail free card.
It was perfect.
The market -- this was the perfect get out of jail free card.
He didn't actually step up and kind of get anyone to disavow themselves of the notion that tapering was coming.
He said we basically misunderstood him.
But he hasn't been seen since mid july.
Maybe if he wants to play this game, he should get out there and talk to people feared they cited a sluggish economy, weakness in the economy, perhaps it's not on solid ground to scale back.
Is that something we should be worried about?
There is also enough research out there this is that the efficacy of quantitative easing, there isn't anything.
It doesn't add much the economy to begin with pnc can make that argument for a while -- it doesn't add much to the economy.
So you can make that argument for while.
Just like having children and buying a home, there will never be a good time.
If you wait for the perfect time, you will be childless and living in an apartment.
You run billions of dollars.
Please, what does all this mean for investors?
It is good for equity investors are probably better for bond investors.
The fed didn't act because it realizes that the forward data on economic activity doesn't look so good him a especially given the weakness -- so good, especially given the weakness in housing.
We will see a lot of downward pressure on rates.
That is probably a better place to go with your money right now than into stocks.
If you believe the fed and there is a downward pressure on growth, that will not be good for earnings in the near-term.
When you look at the data, this is the worst bear market on record on the percentage basis in the last 50 years.
It is up 100% from the lows.
There has never been a time when you had a 20% increase in rates over a 200-day period where you had a meaningful rally afterwards.
We would expect to see rates
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