The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder
from Naked Capitalism:
The BIS Loses Its Mind, Advocates Kicking Citizens and the Bond Markets Even Harder
If anyone doubted that Ben Benankes were convinced the economy is getting better, so take your lumps press conference after the FOMC statement last week was awfully reminiscent of 1937, the newly-released Bank of International Settlements annual report is tantamount to a kick to the groin. And to change metaphors, if the Feds sudden hawkish posture is playing Russian roulette with the real economy, the BIS just voted loudly for putting a couple more bullets in the cylinder.
Investors took the news badly, with 10 year Treasury yields rising from 2.18% before the FOMC statement to 2.53% at the end of Friday. And the selloff continues, with the 10-year yield as up to 2.62% as of this writing.
Some commentators thought the Fed talk was misread, pointing to the various thresholds and triggers the central bank set for for commencing its QE exit and they actually werent so terrible. Others refused to believe Bernanke was serious, with Marc Faber saying that bonds, stocks, and equities were very oversold and arguing, We are going to go with the Fed to QE99.
Unfortunately, the worry warts are looking to have the more accurate reading. Tim Duy zeroed in on a key bit of information, namely, St. Louis Fed James Bullards speech on Friday, on his dissent from the FOMCs vote (Bullard thinks low and falling inflation means the economy is weaker than his colleagues believe). This was Duys takeaway:
Why would the Fed lay out a plan to withdraw accommodation which in and of itself is a withdrawal of accommodation at a meeting when forecasts were downgraded? Because, as a group, policymakers are no longer comfortable with asset purchases and want to draw the program to a close as soon as possible. And that means downplaying soft data and hanging policy on whatever good data comes in the door. In this case, that means the improvement in the unemployment rate forecast. Just for good measure, lets add on a new policy trigger, a 7% unemployment rate. In my opinion, it is not a coincidence that they picked a trigger variable where their forecasts have been most accurate or even too pessimistic. They loaded the dice in their favor
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I think market participants clearly heard Bernanke. After weeks of being soothed by analysts saying that the data was key, that low inflation would stay the Feds hand, Bernanke laid out clear as day a plan for ending quantitative easing by the middle of next year. Market participants then concluded exactly what Bullard concluded: Its the date, not the data.
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The complete piece is at:
http://www.nakedcapitalism.com/2013/06/the-bis-has-lost-its-mind-advocates-kicking-citizens-and-the-bond-markets-even-harder.html