International Forecaster Weekly

The Taper Round 3

Is that the sort of things cutting QE is made of? Probably not. They have to know that yanking QE a week ahead of Christmas is going to cut out “X” amount of economic activity that folks would have spent on, as they fear the end of the free money wagon. Do they want that? No.

Bob Rinear | December 14, 2013

The majority of MMA (mixed martial arts) bouts are 3 rounds, unless it is a title fight and then they are usually 5 rounds. Well, we’re entering round 3 in the “market versus Bernanke” fight concerning whether they are going to “taper” their QE program from 85 billion a year to something less.

The talking head Feds, those on the committee…have been out in force telling anyone that would listen that there’s a good chance the taper is coming in December at their next two day meeting next week. So, just like this summer, and again in September, as we’re approaching the date of the meeting, the market has fallen ahead of it. The Fed heads warned us then too that a taper was coming. It didn’t.

Some are defending the recent drop in equities as simply profit taking. They say that the year was so good that the fund managers are selling to “lock in” those gains. Okay, there’s no doubt some of the selling is related to “locking in”. But why now? Why not on Dec 31? Because they needed something to move them to action, a cattle prod poke in the butt. The fear of a taper and some massive “bolting for the doors” was that very catalyst. They figure that if the Fed’s do announce a taper, it really isn’t priced in and everyone will try and get out the door at the same time.

I’m getting seriously tired of having to dissect this whole QE taper thing every few months. It is getting very old. But because the market does indeed move based on these Fed lunatics, we have to chew through it. So, let’s do a little sleuthing and see if a taper really makes any sense.

This year we’ve heard Wal-Mart execs say it was one of the worst years they ever saw (spring news). Then they missed estimates…again. We’ve seen Costco miss the estimates. Looking back to summer we see Best buy and Dicks, and a dozen others that couldn’t make the estimates. When the middle class retailers are seeing a weak consumer, is the Fed’s work really done?

How about housing? If you listen solely to CNBC you’d swear we’re in the halcyon days of the housing bubble with fist fights on the front lawns of houses listed so they can outbid each other. Yet mortgage applications are down virtually every month. Just Thursday we learned that new home mortgage applications fell 18% month over month. We also know that massive hedge funds have been buying up blocks of 10 and 20K houses with the intent to rent them out. This is fake demand. This isn’t the kind of demand that spurs local economies. Overall, the housing market is not nearly as hot as TV says it is.

Then we have to consider the GDP numbers we got. They blew away estimates. But then when you dig into them you see that rising inventory levels added a lot to the gains. Is all that inventory going to sell? Nope. Not only that, don’t forget that they changed the way they account for intellectual property, and this past reading reflected that. Do the implied values of reruns of old MTV shows really belong in the GDP? Well they are now.

Or how about retail sales over all? Every CEO says that they have to promote the hell out of things to move product. Promote means “blow it out at rock bottom prices”. Where’s the big profits by doing that?

Our so called jobs numbers are now so distorted, it is almost impossible to figure out just where the true unemployment level is. Shadow Stats has them at about 23% if we measured them like we used to. Uncle Sam says 7%. Who do you believe? Or how about inflation? On Friday the PPI came in with a slight drop. They’re still telling us that the core is 0.2%. Really? Do any of you think inflation is under 2%? If you do, I’m sorry but you need meds.

Now the Feds are indeed criminal lunatics. But they aren’t stupid. They know the “real deal”. They know housing is just bumping along, jobs stink, sales stink, inventory builds are dangerous, profit margins are skinny, 65% of companies had their estimates lowered and still missed, companies are borrowing money to do buy backs, EPA regulations are killing entire sectors, Obama Care is costing everyone extra thousands they don’t have, savings are non existent, banks are still in woeful shape and all in all…we’re just getting by.

Is that the sort of things cutting QE is made of? Probably not. They have to know that yanking QE a week ahead of Christmas is going to cut out “X” amount of economic activity that folks would have spent on, as they fear the end of the free money wagon. Do they want that? No.

So, logic tells me that they are not going to taper next week. Do I think that Bernanke and Company will tell us in stern language that they were “just that close” to doing it, but needed a bit more data? You bet. They will try and scare everyone….but I don’t think they’ll do one. Here’s why: If they toss out a small taper, say 10 billion a month, that still leaves an incredible 75 billion a month coming into play. That’s still almost a trillion a year. So it probably wouldn’t really effect the economy that much. But it would affect consumer psychology. The market would think that they’ve started on tapering and will continue. They won’t like that a bit, and if the rich start selling stocks and hording money, then the real economy will grind to a halt.

Then the Fed under Yellen would have to reverse course and jam even MORE QE into the system to repair the damage the taper did. I just don’t think they want that much drama.

But there is one wild card that we have to consider. It isn’t pleasant and I hope I’m just imagining things. But the fact is we’ve seen the work being done in the secret shadows, the back ground… to do a global currency reset. The elites know that this system is doomed and need to replace it and they’ve been working on it. Could a new global reserve be so close to implementation that the Fed’s do start tapering, knowing it will blow up the economy and make people much more willing to accept any new plan they come up with? Unfortunately it is possible folks.

I’ve written quite a few times about the idea of a global reset coming. At some point, they have to have the “people” in the right mindset to accept it. Well with the Fed supporting the markets, even though things are a struggle for the middle class, they aren’t in a panic. If the Fed removes stimulus, the markets fall, economic activity falls, layoffs resume… at some point the masses will scream for relief. Then they’ll announce their new “reset”.

So in the big picture, here’s how I view it. They probably will not taper. But if they do, or they do it in January, and it isn’t put back by Yellen in say 4 or 5 months, then the game has changed, and it is possible that they want to impart enough pain to soften folks up for a major change. Again I hope I’m just dreaming here, and none of this will happen. But lets face it, there’s not a sane person on earth that thinks the US is going to hold onto reserve status fore ever. We’ve ruined it for ourselves. Some form of change is indeed going to come, and they can’t put it off for ever. Any tapering that isn’t reversed relatively soon… is a big danger signal that something big is brewing.

Folks I truly hope you all have the greatest of Holidays, and that you enjoy your holiday with loved ones. While we all get caught up with the commercialism that they’ve jammed on us, the spirit of the season is indeed still there if you want it to be. The meaning of the season is that we all received a gift, but it wasn’t an ipad or a smartphone. It was a spiritual gift of “good”. Share that good with your friends and family. In the end, it really is all we have.