5 Things To Ponder This Weekend – The Taper Edition

Submitted by Lance Roberts of STA Wealth Management,

This past week the Federal Reserve began tapering their current large scale asset purchase (LSAP) program, more commonly referred to as Quantitative Easing (QE), by trimming $10 billion in bond purchases from the previous monthly totals.  This week's "Things To Ponder" is a diverse set of views on the potential effect of the taper on the financial markets and the impact to investors.  Regardless of your personal expectations as to the impact of the reduction of liquidity in the months ahead, it is always a good mental exercise to consider opposing viewpoints to balance your own views by eliminating confirmation bias.  Here are 5 disparate views on the effect, and potential outcome, of the Federal Reserve's latest move.

1) The Fed Is Just Winging It Now by Jeffrey Snider, Alhambra Partners

I have discussed in the past that the Fed's primary concern are the deflationary pressures that continue to plague the economy.  (See here and here)  Jeffrey did a terrific job discussing this point, and the entire post is well worth your time reading.

"In the wake of finally (FINALLY) reaching the primary taper point, it is worth remembering exactly what QE was supposed to do. QE is the 'extraordinary' policy tool that accompanies ZIRP. That mystical lower bound of 0% rates is believed penetrable by jiggering with inflation expectations. Thus, QE is meant as a means to increase inflation expectations, leading to negative real interest rates – and economic panacea/utopia from there.

 

Instead of that, we still have ZIRP now almost for five full years and inflation behaving very much contrary to modeled and publicized expectations. That is true not only in the CPI, but in nearly every official measure of inflation. That would make this a curious development in the light, again, of what QE was supposed to accomplish."

ABOOK-Dec-2013-CPIPPI-CPIu

2) Fed Taper Begins, What Happen's Next by Mohammed El-Erian

Mohammed points to four reasons why the Fed's actions make sense:

1) Fed is right to be more confident of the economy.

2) Fed's confidence is not overwhelming, just better.

3) Mixed outlook calls for delicate policy balance.

4) Fed still has room to lower the overnight lending rates.

"Investors are right to take all this to mean that the Fed remains highly committed to supporting an improving economy — and, since it seemingly can only do so through 'the asset channel,' the institution thus remains committed to supporting markets.

This is particularly good news for equity markets in the short-term, building on what already has been a great performance year. It also contains the disruptions to bonds."

3) Post-FOMC Strategy by Doug Kass

Doug does a good analysis of the Federal Reserve's QE program.

"1) QE has provided a stock market put and has also prevented the natural discovery of prices in both the stock and bond markets.

 

2) The general belief is that the U.S. stock market will be able to overcome the reduction in bond buying.

 

3) The critical questions are whether the economy can handle higher interest rates and whether stocks can rally in the face of a less liquidity.

 

4) The addiction to low interest rates runs deep with consumers, corporations in the private sector and our government in terms of financing the U.S. deficit, which will weigh on optimistic growth expectations and the consensus view that stocks will rise further.

 

5) The domestic economy is heavily doped up by abnormally low interest rates and monetary accommodation.

 

6) Monetary policy (the Fed) has been needed to support growth in our domestic economy. With that monetary support moderating coupled with the lack of fiscal responsibility and the inability of Democrats and Republicans to come together, more uncertainty than less certainty of policy lies ahead.

This should be valuation-deflating.

 

To a person, the talking heads in the media who provided instant analysis of the Fed's tapering decision were bullish late yesterday afternoon. Not surprisingly, many of the same commentators who were bullish after a 300-point rise in the DJIA had previously cautioned about the market's likely adverse response to a tapering.

 

It is for the reasons listed above (and others) that I shorted yesterday's market rip and moved from a market-neutral stance to a net 10% short position. (I have since shifted back to neutral.)

 

What keeps me from moving more aggressively short is that I have learned to be respectful of the market's unbelievable price momentum, and frankly, I don't know the timing of a downturn/correction with any degree of certainty or precision.

 

That I am certain of is, as The Oracle wrote, it might shortly 'be time to be fearful when others are greedy.'"

4)  5 Reasons Stocks Didn't Suffer A Taper Tantrum by Adam Shell, USA Today 

"The past two times the Fed warned of tapering, the Dow fell — 4.9% back in May and June, and 5.6% in August. The declines were dubbed 'Taper Tantrum 1' and 'Taper Tantrum 2.'

 

So why did stocks go up when most pundits figured they would go down?

 

Here are five theories why the first taper didn't tank the stock market:

 

1. It signals the Fed's faith in the recovery.

2. It reduces uncertainty.

3. It amounts to 'Taper Lite.'

4. It caught Wall Street off guard.

5. It doesn't change the Fed's dovish stance.

< p> 

The takeaway: The Fed will remain highly accommodative for years."

5) The Taper Morning After: A Full Summary Of What "They" Are Saying via Zero Hedge

"Strategists were largely wrong about the yes taper in September, and then they were just as largely wrong about the no taper in December, and yet their opinion is just as largely gospel and people continue to listen to them (what else is there to be distracted by in a still very much centrally-planned market and economy). Which is why the below summary by Bloomberg of what global financial strategists and investors, also known as "they", are saying about how to trade assets in the post-taper world, should probably be taken, largely, with a grain of salt."

Views from PIMCO, BlackRock, HSBC, UBS, Morgan Stanley, SocGen and others.  It's a good read particularly if you have a currency bias in your portfolio.

Chart Of The Week – What Difference Does $10 Billion A Month Make

The chart below shows the Federal Reserve's balance sheet as compared to the S&P 500 with both being projected through the end of 2016.  The dashed lines denote the projected expansion of the balance sheet, and the correlated rise in asset prices, both before and after the Federal Reserve's most recent "taper."

Fed-Balance-Sheet-VS-SP500-122013

Wishing you a very happy holiday season and a merry Christmas.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-HpbMrXK4XE/story01.htm Tyler Durden

Bonds’ Best Day In 8 Months As Stocks Close At Record Highs

Treasury curve flattening continues to gather pace as 30Y bonds rallied their most in 8 months today (even as the shorter-end sold off modestly) but on the week the flattening is dramatic to say the least. Of course, all eyes were on stocks as the Dow and S&P leaked (post European close) to new highs (and the Russell gained back yesterday's losses and some to close the week's winner +3.5%). Gold (and silver) rallied on the day back over $1200 (but closes -3% on the week). VIX followed a similar pattern to yesterday with an early drop followed by a drift higher as it's clear managers are protecting into year-end. Quad witching and rebalancing provided some fireworks into the close as volume rose and stocks slid (as Nanex noted – something broke – lots of micro-crashes/rallies) as CBOE quotes stopped with 10 minutes to go.

 

The late-day chaos perhaps summed up best by Nanex…

 

The long bond surged lower in yields today…

 

and on the week the flattening is very clear…

 

Gold rallied on the day but closed -3% on the week…

 

Stocks were well coupled with JPY crosses until the European close and then decoupled… with the closing dump seemingly attempting to recouple…

 

After yesterday's disappointing performance, the Russell 2000 surged back to take the victory on the week… (even as the Dow and S&P rolled over)…

 

But VIX tracked a similar trajectory today with protection bid all afternoon…

 

Charts: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Zpn7tZZx7mk/story01.htm Tyler Durden

Bonds' Best Day In 8 Months As Stocks Close At Record Highs

Treasury curve flattening continues to gather pace as 30Y bonds rallied their most in 8 months today (even as the shorter-end sold off modestly) but on the week the flattening is dramatic to say the least. Of course, all eyes were on stocks as the Dow and S&P leaked (post European close) to new highs (and the Russell gained back yesterday's losses and some to close the week's winner +3.5%). Gold (and silver) rallied on the day back over $1200 (but closes -3% on the week). VIX followed a similar pattern to yesterday with an early drop followed by a drift higher as it's clear managers are protecting into year-end. Quad witching and rebalancing provided some fireworks into the close as volume rose and stocks slid (as Nanex noted – something broke – lots of micro-crashes/rallies) as CBOE quotes stopped with 10 minutes to go.

 

The late-day chaos perhaps summed up best by Nanex…

 

The long bond surged lower in yields today…

 

and on the week the flattening is very clear…

 

Gold rallied on the day but closed -3% on the week…

 

Stocks were well coupled with JPY crosses until the European close and then decoupled… with the closing dump seemingly attempting to recouple…

 

After yesterday's disappointing performance, the Russell 2000 surged back to take the victory on the week… (even as the Dow and S&P rolled over)…

 

But VIX tracked a similar trajectory today with protection bid all afternoon…

 

Charts: Bloomberg


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Zpn7tZZx7mk/story01.htm Tyler Durden

What CEOs Are Really Worried About – Discounting And Obamacare

It will likely come as no surprise that, despite a ‘surging’ economy (based on today’s inventory-stacked GDP), that CEOs are less than upbeat about the future when one scratches below the surface of 5-second soundbites. As Bloomberg’s Rich Yamarone notes, from the most recent quarter’s earnings calls, two critical themes emerge as top of mind for CEOs – consumer-related companies remain skittish about the ability of households to spend without a heavily promotional environment and companies cited upcoming healthcare legislation as a hurdle to performance and profitability.

 

Coldwater Creek [CWTR] Earnings Call 12/11/13: “While the third quarter was a challenging period for us, we were able to react quickly to the trends in the business by improving our assortments and refining our marketing plans. We have seen an improvement in our sales trends and conversion rates. However, we are seeing an increasingly competitive and highly promotional environment, traffic remains challenging and the majority of the holiday season lies ahead of us.”

Bebe Stores [BEBE] Earnings Call 11/7/13: “While we are pleased with the progress that we have made in first quarter of 2014, we are facing a few headwinds as we enter second quarter. As it has been widely reported, the macroeconomic environment has been increasingly difficult starting the last week of September and continued into October, which has resulted in some decline in traffic trends as well as creating a highly promotional environment.”

Cosi Inc [COSI] Earnings Call 11/14/13: “The increase in labor and related benefits as a percentage of restaurant net sales was due in large part to the deployment of additional hourly labor in an effort to improve speed of service and guest satisfaction, combined with the deleveraging impact of the comparable store sales decline on the fixed portion of our labor costs. We were also adversely impacted in the quarter by higher employee health insurance costs.

Flowers Foods [FLO ] Earnings Call 11/7/13: “You look at employ-related costs, we’re seeing increase there. You have healthcare increases. It’s kind of some of the typical things you would expect from an employee perspective.”

Wal-Mart [WMT] Earnings Call 11/14/13: “The retail environment, both in stores and online, remains competitive. At the same time, some customers feel uncertainty about the economy, government, jobs stability and their need to take care of their families through the holidays. Walmart has aggressive plans to help our customers enjoy the holiday season…”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/M37CU71ZlJ0/story01.htm Tyler Durden

Guest Post: The Case For Owning Farmland (In One Simple Statistic)

Submitted by Simon Black of Sovereign Man blog,

In investing, it’s often said that nothing goes up or down in a straight line.

Stocks, bonds, commodities… they all go through periods of growth, correction, collapse, mania, etc.

We’re seeing this right now with respect to a substantial decline in the nominal gold price after more than 12 straight years of gains.

But I’ve just recently come across an investment trend that has posted the same results for more than 20-years straight. And it’s actually quite alarming.

Every human being on the planet requires sustenance… typically measured in Calories per day.

What’s interesting is that the global average of per-capita Calorie consumption has increased a whopping 24.6% since 1964.

So over the last fifty years, the data clearly show that human beings are eating more… now to an average of roughly 2,940 Calories per person per day.

As you can probably guess, most of the rise has taken place in East Asia just over the last two decades, owing to the increased wealth in that part of the world.

Roughly a billion people have been lifted out of poverty in Asia alone. And as people begin to generate income and accumulate savings, their dietary habits have invariably changed. They eat more, i.e. demand more Calories.

As we eat more, we require more resources from the world. And in the case of food, this means more arable land to grow crops.

But there’s another twist to this trend. As people become wealthier, they not only eat more, but they also begin to consume more resource consumptive foods– especially meat.

It takes a lot more land to grow a kilogram of beef than it does to grow a kilogram of tomatoes. The difference can often be an order of magnitude greater.

So when you look at the demand side of this equation, per capita food consumption is increasing… and we are also consuming a vastly greater amount of land-intensive foods.

In short, the global trend is that we are demanding a much greater amount of arable land per person.

Yet the data on the supply side show the precise opposite.

According to World Bank data, the global average of arable land per person has been on a one-way decline since 1992.

In fact, since 1964, there has only been one year that the global average of arable land per person has increased. In every other instance over the last five decades, arable land per person has declined.

This is an astounding trend.

Our modern ‘science’ is stepping in to address this trend. It’s why much of what we eat is now concocted in a laboratory rather than grown on a farm. It’s why McDonalds puts pink slime in its hamburgers instead of… you know… beef.

But even still, science only goes so far.

Yields for many staple crops (like wheat) essentially hit a wall about ten years ago. After decades of miraculous gains in the amount of tons, bushels, and kilograms per acre we have been able to extract from the Earth, productive capacity has largely plateaued.

In other words, we have maxed out what we can pull out of the soil for now. And the amount of soil per person that’s in production is in serious decline.

To me, this spells out an obvious case for investing in agriculture… and even more specifically, to own farmland.

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ejO4TjqBvMA/story01.htm Tyler Durden

Tonight on The Independents: Steroids, Concussions, Stadium Subsidies, College Compensation, Title IX, and How Sports Makes Society Weirder and More Fun!

THE Answer, really. |||Tonight at 9 pm ET, and then repeated again at
midnight, Fox Business Network’s The
Independents
will be devoting its Friday-magazine episode
to one of the nation’s most entertaining subjects—except when it
mixes with politics.
That’s right, we’re talkin’ about sports!

First up is the terrific Yahoo! baseball writer Jeff Passan, who explains why
his inaugural Hall of Fame ballot this year will include (in
Kennedy‘s
phrasing) some “pumpkin heads”–players widely associated with
using performance-enhancing drugs. Following that, former tailback
great Ricky
Watters
describes in moving detail why he has
joined the crusade against concussions
in the NFL.

Throw it down, big man, throw it down! |||Also: Economist J.C. Bradbury discusses the

curious persistence of stadium welfare
in the face of
overwhelming evidence that the stuff never pays off; libertarian
legal genius Richard Epstein
makes the case against the women-in-college-athletics provisions of

Title IX
, the co-hosts yell at each other a lot about
compensating college athletes, and there is a lively discussion at
the end that touches on gay NBAer Jason Collins, Jackie Robinson,
and Bill
Walton’s weed habits
.

Practice? This show counts!

from Hit & Run http://reason.com/blog/2013/12/20/tonight-on-the-independents-steroids-con
via IFTTT

Video of the Day: Interview with Coinbase Founder Brian Armstrong

This is one of the most interesting Bitcoin-related videos I have ever watched, and I have watched plenty. Coinbase has been at the center of BTC news as of late after it became the recipient of the largest investment ever in the Bitcoin space when Andreessen Horowitz announced a $25 million capital infusion. I personally set up an account at Coinbase recently and have been very pleased with my experience so far. I feel even more comfortable having watched the founder Brian Armstrong speak in this video. Not only do I like the way his mind works, but I’m impressed that he has a background in both Computer Science and Economics.

The topics in this video are wide-ranging and it answered a lot of my own personal questions. The highlights for me were:

1) The fact that they keep about 95% of customer BTC offline in cold storage (not connected to the internet). They maintain 5% of customer funds in a hot-wallet used to handle normal day-to-day activity. It was also fun to hear the process of how they go about retrieving offline private keys in the case of outsized trading activity.

2) The potential change within the Bitcoin community to move from price quoting per BTC to mBTC (1/1000 of a bitcoin).

3) The fact that they are in discussions with very large merchants about accepting BTC. He thinks 2014 will be a huge year for merchant adoption (recall just yesterday the CEO of Overstock said they would begin accepting it in 2H14).

4) That the creator of Litecoin works for Coinbase.

These are just some of the topics discussed. An absolute must-watch for anyone interested in Bitcoin.


 Follow me on Twitter.

Video of the Day: Interview with Coinbase Founder Brian Armstrong originally appeared on A Lightning War for Liberty on December 20, 2013.

continue reading

from A Lightning War for Liberty http://libertyblitzkrieg.com/2013/12/20/video-of-the-day-interview-with-coinbase-founder-brian-armstrong/
via IFTTT

Having a Holiday Party with an Open Bar? Better Hope The Cops Don’t Shut It Down.

It’s the most wonderful time of the year: when we
all gather together at company parties to wear ugly sweaters, eat
some cheese cubes, have a few drinks with that girl from HR … and
get shut down by the cops. At least, that’s what happened at one
event in Boston last Friday.

One week ago, member’s of the city’s technology sector came
together for the fourth annual
Tech Co-Party
, the purpose of which was to throw “an office
holiday party for tech start-ups too small to have their own.” It
was an open invitation, and party-goers paid up to $50 to join the
fun. Part of the profits went to charity.

Unfortunately, the event was cut a few hours short. The
Institute for Justice (IJ)
reports
that “a little after midnight on December 13th, Boston
police crashed the party and shut down the bar.
Officers issued a citation to the Revere Hotel, which hosted
the Tech Co-Party, for allegedly breaking the law.”

One of the participating organizations, Calcbench, took to
Twitter to explain what happened. “We were told the liquor
commision accused the organizers of trying to turn a proft [sic]. I
guess open bar is not allowed for that,” they wrote.

Event organizer Ben Carcio told the IJ, “From what Boston Police
said to us the night of the event, they watch EventBrite, where we
sold the tickets, and they look for ‘Open Bar,’ which is their
concern. They view it as unlimited drinking for a ticketed
price.”

Massachusetts liquor laws prohibit selling
“to any person or group of persons any drinks at a price less
than the price regularly charged for such drinks during the
same calendar week, except at private functions not open
to the public.” If the party wasn’t doomed already,
“advertis[ing] or promot[ing] in any way” open bars is also part of
law – which the Tech Co-Party broke by
encouraging
 party-goers to promote it on social
media.

Carcio was unaware of the law, which hasn’t been invoked to stop
the Tech Co-Party in past years. He was perplexed as to why the
police didn’t “just let us know [open bar was not allowed],” he

explained
to Boston magazine. “That one little
thing would have prevented any of this being more than it needed to
be.” He also stated that in order to guarantee “no
hard feelings
” between them, $500 raised by the Tech Co-Party
was donated to the Boston Police Department.

City councilor Tito Jackson said he was aware that “police look
at Facebook and Eventbrite as part of the monitoring they have [in
place].” He agreed with Carcio that if police “have information
prior to an event, we should either be picking up the phone,
visiting the bar, or having a conversation and reminding people of
the laws or rules and regulations, rather than show up the night of
the event and shut it down.”

A string of similar busts
happened last New Year’s in Boston, and police presumably will
continue to catch harmless holiday parties off-guard unless
legislators decides to reform the law.

from Hit & Run http://reason.com/blog/2013/12/20/having-a-holiday-party-with-an-open-bar
via IFTTT

Having a Holiday Party with an Open Bar? Better Hope The Cops Don't Shut It Down.

It’s the most wonderful time of the year: when we
all gather together at company parties to wear ugly sweaters, eat
some cheese cubes, have a few drinks with that girl from HR … and
get shut down by the cops. At least, that’s what happened at one
event in Boston last Friday.

One week ago, member’s of the city’s technology sector came
together for the fourth annual
Tech Co-Party
, the purpose of which was to throw “an office
holiday party for tech start-ups too small to have their own.” It
was an open invitation, and party-goers paid up to $50 to join the
fun. Part of the profits went to charity.

Unfortunately, the event was cut a few hours short. The
Institute for Justice (IJ)
reports
that “a little after midnight on December 13th, Boston
police crashed the party and shut down the bar.
Officers issued a citation to the Revere Hotel, which hosted
the Tech Co-Party, for allegedly breaking the law.”

One of the participating organizations, Calcbench, took to
Twitter to explain what happened. “We were told the liquor
commision accused the organizers of trying to turn a proft [sic]. I
guess open bar is not allowed for that,” they wrote.

Event organizer Ben Carcio told the IJ, “From what Boston Police
said to us the night of the event, they watch EventBrite, where we
sold the tickets, and they look for ‘Open Bar,’ which is their
concern. They view it as unlimited drinking for a ticketed
price.”

Massachusetts liquor laws prohibit selling
“to any person or group of persons any drinks at a price less
than the price regularly charged for such drinks during the
same calendar week, except at private functions not open
to the public.” If the party wasn’t doomed already,
“advertis[ing] or promot[ing] in any way” open bars is also part of
law – which the Tech Co-Party broke by
encouraging
 party-goers to promote it on social
media.

Carcio was unaware of the law, which hasn’t been invoked to stop
the Tech Co-Party in past years. He was perplexed as to why the
police didn’t “just let us know [open bar was not allowed],” he

explained
to Boston magazine. “That one little
thing would have prevented any of this being more than it needed to
be.” He also stated that in order to guarantee “no
hard feelings
” between them, $500 raised by the Tech Co-Party
was donated to the Boston Police Department.

City councilor Tito Jackson said he was aware that “police look
at Facebook and Eventbrite as part of the monitoring they have [in
place].” He agreed with Carcio that if police “have information
prior to an event, we should either be picking up the phone,
visiting the bar, or having a conversation and reminding people of
the laws or rules and regulations, rather than show up the night of
the event and shut it down.”

A string of similar busts
happened last New Year’s in Boston, and police presumably will
continue to catch harmless holiday parties off-guard unless
legislators decides to reform the law.

from Hit & Run http://reason.com/blog/2013/12/20/having-a-holiday-party-with-an-open-bar
via IFTTT