I was chatting with Vince Foster (@exantefactor on Twitter) and we exchanged some interesting ideas. This talking to people and fleshing out concepts may even catch fire someday. So Vince pointed out that the Fed had moved away from terminal dates in its LSAP programs to mitigate the end point risk and developed a basic criteria for “open ended” action. That criteria was, allegedly, some level of Unemployment combined or in association with some inflation expected or realized. That metric was then tweaked to the amorphous and clearly made up “cost/benefit analysis” after Abenomics became more popular than Puffy Ami Yumi.
Enter “Tapering” a market trial balloon of Felix Baumgartner magnitude. Assets around the Globe have descended rapidly and sometimes spinning out of control as “the QE that doesn’t work” reestablished the notion of gravity. Tapering is a broken commitment. A ruse bordering on the confirming of a lie. Real yields have jumped markedly but inflation expectations have declined some. GDP has softened with the usual mix of late and heavily revised inputs. The Unemployment rate-participation and part time adjusted- is hanging around. Which of the 2 metrics for advancing “open ended LSAP” would the Fed lay at the feet of the god Taper to appease the markets? I would submit that markets are reacting to the notion that the Fed is “winging it” (our description of cost/benefit rhetoric at the time). Uncertainty, opacity and re-metricing, intended or accidental, are merely green lights for markets that atrophy under the pressure of CB induced “stability” to get up and move around.
Its a good thing.