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It's Not A Pre-Set Course!

John Blank

Well, my inner macro self shone through today.  The Fed kept its $85 billion in bond buying intact.

Let's revisit a few lines I wrote yesterday.

"My answers here are "what I would do" aka what a reasonable macro economist would do.  In light of that, I would not actually taper until mid-2014  In light  of that not being the consensus on the committee, at the moment, I would take $10 billion in bonds off the table".  

- John Blank, quoting himself from yesterday.

Now, I am heading to the gym to bulk up on the barbells, because I was a wimp.   It just goes to show you how difficult it is to stick your neck out  in the face of a broad media-driven consensus.  But the September FOMC vote was 9-1 here, and the usual Esther George vote was the naysayer.  It wasn't even close.  

What this says is that the hard macro data prevail. Chairman Bernanke re-iterated that ad nauseum in his press conference.

The timeline is not related to Chairman Bernanke's coming retirement, and it  is not going to be anything else that is political.  The taper will be decided by just the hard cold facts of a muddle through labor market, and obvious stress being imposed on the housing market.  And that means, a change in Fed policy may not happen this fall, unless the labor market data get much better.

This is a lesson for the financial markets, and one that has to be re-learned.  The Fed is an empirical animal.  As investors, we need to keep the hard cold facts in front of us, and see the obvious.

Here is how the financial markets reacted:

(1) S&P 500 up +18 points, to a new high.  Then, up +20 points during the Bernanke question session.
(2) WTI oIl up over $2.50 a barrel.
(3) 10-Year U.S. Treasury rates down 9 basis points, from 2.85% to 2.77%.
(4) Gold prices up $35 an ounce.
(5) VIX volatility measured fell from 14.4 to 13.3

My RTI question:  Act like the Fed.  Start With These Facts.  What Does the Market's Reaction Say to YOU?
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