The Fed: To Taper or Not To Taper – Podcast 8.22.13

To Taper or Not To Taper

Cumulative Summary of the Fed’s Position on Tapering QE: “We need more of what didn’t work to make sure it’s working and we need more data and we said we would taper, so there, but no rush!

JM Bullion

Summary Of Podcast

Ryan and Louis discuss the initial jobless claims and note that it was higher than the consensus expectations. Ryan notes that the bond market did not respond to the number and notes that negative news is often spun as positive news.

Louis notes that Reuters claimed that the rise in initial jobless claims “hinted at quicker hiring” Louis points out the absurdity of that position.

Ryan notes that part time work is not good for the economy. Ryan notes the excessive reliance of the market on what the Fed does.

Ryan notes that the Fed minutes reveal that the Fed board members are in favor of tapering but did not give a date. Ryan refers to this as kicking the can down the road and thinks the Fed will not taper QE this year as there is no evidence that the economy is improving.

Louis notes that even the Fed board members agree that the economy is not improving but have decided to taper anyway- or at least say they are going to taper but won’t say when or by how much.

Louis notes that the Fed wants any excuse not to taper. Ryan notes that the more the Fed talks taper, the higher yields rise on Mortgage backed securities. Ryan notes that without further QE the rates won’t drop.

Louis note that the Fed won’t be able to talk rates down but will need to do more QE. Ryan asks will the Fed backtrack and admit it they need QE.

Louis point out the Fed’s dilemma printing (risk of debasement) and not printing (risk of crashing the economy) and note that the Fed will find an excuse to keep printing and if they wish to appear to be good for their word, they will do a symbolic taper and quickly reverse course if the economy reacts negatively.

Ryan notes that the Fed is considering doing reverse repos, whereby they sell mortgage backed securities and buy them back the next day. Louis calls this self dealing as the member banks will be the once conducting the transactions and getting a fee. Louis notes that the plan is nothing more than shuffling paper.

Ryan notes that Bernanke’s term as Fed President is probably soon coming to an end. Louis and Ryan discuss the current slate of voting Fed board members and discuss Bernanke’s actions in light of his consideration of his legacy.
JM Bullion

Louis notes that the whole “recovery” in real estate and stock market is based on low interest rates. Ryan and Louis talk about how low interest rates creates malinvestment.

Ryan and Louis discuss Freddie Mac’s three reasons why housing is helping rebuild the US economy. and then pick apart their reasoning:

-Demand for housing will Drive employment
-Rising Home Prices Means Increased Family Wealth Which Leads To Increased Spending
Louis and Ryan discuss the problems of a debt based economy based on people moving in and out of housing. Louis notes that there is a myth of U.S. consumer that somehow the US consumer knows how to spend money better than others.
-Small Business Development is Funded Through Home Equity! Ryan describes the Freddie Mac report as asinine

Ryan discusses new FHA rules that allow people who have gone to bankruptcy to apply for a mortgage in one year.

Louis notes that supply and demand are manipulated to create higher prices in the real estate and stock markets.

Ryan and Louis note how the housing bubble caused the last financial crisis and how the Fed is back at it. Louis notes that Peter Schiff, Ron Paul and others warned of the housing bubble yet are still ignored.

Ryan discusses the state of the DC metro area housing market. Louis notes that interest rates have risen 80% in a few month and argues that rising rates do not mean an improving economy. Louis also noted that Bernanke himself said the economy is weak and would tank with higher interest rates.

Ryan and Louis discuss their views on the likelihood that the Fed might taper QE.

Ryan predicts more adjustable rate mortgages as rates rise. Ryan explains the mechanics of adjustable rate mortgages.

Ryan provides the credit tip of the week.

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