Phil Grossfield's Blog


Fed Announces QE Taper! Are You Good?

Family MovemberAre You Good?  My family is fine, thanks. Many of you asked about the stomach flu that ripped through our family, and, how my wife dealt with it on her own since I was out of town. Answer: my wife kicks ass.

I was in Chicago and all three of them got sick…and we have no family in San Diego to come help out. Now, it’s one thing to take care of a sick kid…it’s another thing to take care of two sick kids…BUT IT’S AN ENTIRELY DIFFERENT THING ALTOGETHER TO TAKE CARE OF BOTH OF THEM WHEN YOU’RE SICK YOURSELF. I almost flew home early but my wife said she watched an episode of Oprah that made her feel lucky to be able to take care of her kids. You got to love Oprah! AND YOU GOTTA LOVE MY WIFE!

Fed Announces Taper – Bonds and Stocks Are All Over The Place In a Wild Roller Coaster!  The 30-year Fannie Mae Bond was up, then down, then up again, and now down -31bps. It’s one of the craziest things I’ve seen in a long time.

The Fed via Ben Bernanke announced it will begin tapering Quantitative Easing to the tune of $10 billion split between the treasury and mortgage-backed securities. But then they came back 2-minutes later and said that they would not likely begin tapering unless unemployment was well below 6.5%. Ben2For that reason the bond and stock market is on a serious wild roller coaster…down 30bps and then par and then back down again…CRAZY!

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.  The Fed wants to taper (decrease the amount they buy bonds) 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.

Where this will all end up is unknown. Right now we’re down again at -31bps on the day. Until things settle I have no idea how to advise other than a more conservative approach sure seems warranted. Best wishes!

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