Phil Grossfield's Blog

Don’t Tell Me What My Xmas Present Is!  My daughter might end up being a CIA agent, or FBI agent, or private investigator…she’s got skills. But the boy’s got chops too…check it out….

Everyone in my house is sick…and now I am too. However, whereas they all had stomach flu while I was in Chicago all weekend (yikes!), I have what appears to be a minor cold. Nevertheless, I sought refuge on the couch this morning in an attempt to give the nasty headache a chance to dissipate…I was hidden from the kids…and I kept silent when they came down looking for food.

My 8-year old daughter began her interrogation with a smooth attempt to extract any knowledge about her Xmas presents. “Hey, is Daddy down here? No? Good. If you tell me what I’m getting for Xmas, then I can tell you some of the things you’re getting,” she said. The 5-year old boy was confused, “what do you mean? You know what I’m getting?” She responded, “Uh huh, but you have to tell me first.”  But then the light-bulb went on…he figured it out, “DON’T TELL ME! I’M NOT SUPPOSED TO KNOW!”  Ahhhh, how long will the boy’s Xmas integrity last?

Bonds Up This Morning. The Fed Statement Is Tomorrow…Will They Announce QE Tapering? 

The 30-year Fannie Mae Bond is trading higher this morning. As you know, when the bond is being bought, like this morning, generally rates/pricing improve. But let’s focus on the big news…tomorrow’s Fed statement.

Ben Bernanke

According to Barry Habib, 50% of economists believe the Fed will announce QE tapering. As a quick refresher, Quantitative Easing or “QE” is Fed monetary policy of buying bonds to create an artificial market of low rates. Put another way, the Fed buys millions of bonds each day and in doing so, traders continue to invest which keeps rates low.  But there has been a steady increase in pressure to begin tapering this buying of bonds…tapering means to decrease.

Janet Yellen

The Fed wants to taper at some point because they want to eliminate the artificial market. That is, they want the market to be able to support itself without government intervention…they want a more natural market to exist. The big question is when should they taper, and to what extent. Has the economy healed enough to withstand tapering? Can the market sustain growth if the Fed decreases its daily purchases?

This debate has been going on for a year. There were several instances when we thought the Fed would announce tapering. But then a poor economic report would get revealed, or the government shut down, etc. But tomorrow is Ben Bernanke‘s last press conference as the Fed Chair. And if Janet Yellen intends to taper in Q1-2014, this would be a decent way to transition the news. I don’t know what’s going to happen, but I think it’s a distinct possibility. If had to place a bet, I’d bet there is no mention of QE tapering. Also, I’m not sure how the markets will react to the news if they do announce it. My guess is that both stocks and bonds will sell off. But again, I just don’t know. I would love some feedback….