Get ready for the Taper

The Fed may not have a choice, at least with mortgages. With refinancing volume down the Fed has to reduce its purchases or it takes away all liquidity.

Things have changed a lot since July, when it was somewhat iffy. These notes are out-dated. Is fed really going to rush to taper given what is happening globally? Zero chance they begin in September.

Wtf? R u saying Riversider. Do you even speak finance? Or do r u just a wanna be economist? Homeless guy telling bill gates how to invest.

Fed definitely reduces purchases of mortgages this year. Market is clearly pricing that in right now.

How many more mortgages are there to purchase, really?

Read Goodman's commentary this afternoon. This is sort of a summary.
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However, Amherst Securities Group senior managing director Laurie Goodman said if the Fed fails to taper by the fourth quarter of 2013, the central bank will be absorbing 75% of gross deliverable agency supply. If the Fed wants to hold purchases at the same percent of supply as it current does, it must cut new purchases by 40%.

"We don't believe the market is adequately building this in, which suggests to us that investors should maintain a positive bias on the mortgage basis, and any substantive weakness resulting from talks of tapering should be viewed as a buying opportunity," Goodman explained.

http://www.housingwire.com/articles/26342-fomc-participants-remain-cautiously-optimistic-on-qe3-tapering

so if the FED believes that the recovery of the housing market is a major factor for economic growth then why would they want to put a halt to that? I don't get it.
Mortgage rates go up housing market goes down economy goes into a recession and then we get QE4.

>> Things have changed a lot since July, when it was somewhat iffy. These notes are out-dated. Is fed really going to rush to taper given what is happening globally? Zero chance they begin in September

I'll take the other side of that bet. We can even put the line generous against your "zero chance". Gimme 10:1 odds, you name the size.

I don't think the fed truly believes their policy is very efficient, they admit it themselves. It helped a little bit housing but nothing much beyond that. I think they now are mainly concerned with the risk of bubbles (as stated in the minutes) and using any possible reason to deflate those bubbles (but they want to do it slowly in order to avoid a big crash in stocks, bonds, RE).
The real question is: who is going to buy the t-bonds once the fed stops, and at what price ? That s when 16T of debt can hurt (1% = 160bn = 1.6 sequester)

"I'll take the other side of that bet. We can even put the line generous against your "zero chance". Gimme 10:1 odds, you name the size."

I'm not a betting person but here are my predictions:

0 percent chance the Fed will taper.

100 percent chance the Fed will continue to talk about tapering

100 percent chance most people will think the Fed will taper.

100 percent chance that most economists will talk about the Fed tapering.

End result no tapering.

While quantitative easing is constantly discussed in reference to the unemployment rate, there is also no material or demonstrable link between the two. Indeed, a significant part of the decline in the unemployment rate in recent years is a reflection of stagnant growth in the labor force. Normally the labor force grows by about 150,000 workers a month, requiring the same amount of job creation just to hold the unemployment rate steady. Since 2009 the labor force has grown by only about 20,000 workers a month, allowing the unemployment rate to drop even with tepid job creation. Moreover, a significant portion of recent job growth represents a major loss in full-time employment that is being replaced with the creation of part-time jobs. Finally, even the relatively good numbers on new unemployment claims are lagging indicators, and are, as a percentage of the labor force, at exactly the same level as they were in October 2000 and January 2008, as new recessions were unfolding. This doesn’t mean that a recession must unfold in the present instance, but the depressed level of new claims certainly provides no basis to exclude that outcome.

Here's what I propose. Anytime you hear pronouncements about QE from FOMC members, just insert some complete non-sequitur. It's likely that QE has no greater cause-and-effect relationship with the economy, and the headline will not be any worse for it. For example:

Fed Governor Bullard Cautions Against Slowing the Pace of Spitting Watermelon Seeds Into a Can, Citing Continued Economic Risks

Fed Vice-Chair Janet Yellen Pledges to Keep Knitting Enormous Wool Scarf in Order to Provide Support for U.S. Job Creation

Fed Chairman Ben Bernanke Pledges to Keep Playing “Highland Laddie” on the Bagpipes Until Unemployment Rate Drops to 6.5%.

http://www.hussmanfunds.com/wmc/wmc130819.htm

"Higher interest rates could be the cause for the sharp decline in new home sales says Andrew Grantham, economist at CIBC World Markets. Sales of new U.S. homes plunged more than 13% to a 394,000 rate in July, from a downwardly revised 455,000 (from 497,000) in the prior month. This was the lowest reading in new home sales so far this year. "

Is the a possibility that there is less than a Zero chance of tapering in the near or distant future? I know less than a Zero chance would be a negative number but it can mean the opposite of tapering.
Maybe the Fed will go from buying 85 billion per month in bonds to 100 billion per month.

Aren't a large percentage of home sales all cash? Those would not be affected by an increase in mortgage rates. Does anyone know what percentage of NYC sales are all cash?

Riversider, there may not be a clear correlation, but you can for example easily site homebuilding numbers as a major sign of economic growth due to all of the associated labor activity. In that respect you can see that the talk of stopping the taper has severely impacted on economic activity, which will impact labor.

Economy is weak, you don't stop your stimulus just when it beings or else this happens: http://www.reuters.com/article/2013/08/23/us-usa-economy-idUSBRE97M0MG20130823

Nada: My opinion about zero perhaps had some hyperbole, but you really put yourlsef out with those odds!. I think at this point the smartest thing would be for them to technically start the taper, but at such a minor level that people will calm down: i.e. yes we reduced purchases to 80b.

I have to say that the way the fed works in terms of letting all its members give their views, releasing dated minutes, etc is beyond stupid. Institutions need to talk collectively. The way it works is incredibly stupid. There is a lack of any strategic communications which is essential to a proper functioning gov't entity.

Fomaozzzz. All cash offers not affected by interest rate? How fking dumb are you retard? Does apple's valuation increase (all else equal) with 10% return on it's $150b in cash or .01%

Hahahjhanahaaaaaaaa. Haaaaa.

I am a woman!

Riverturd. The accidental economist. If you focused as much time on learning versus bitching about the price of cream cheese, you could've made $2mm on sprint.

Yes the only policy decision is to ensure home squatters get outsized bubble profits! Ha.

The hint of uneasing kicks new home sales in the gutter.... No interest has zero effect on purchases as we all pay cash! Flmaozzzz.

Riversider, there may not be a clear correlation, but you can for example easily site homebuilding numbers as a major sign of economic growth due to all of the associated labor activity. In that respect you can see that the talk of stopping the taper has severely impacted on economic activity, which will impact labor.

correlation is not causation:

>> My opinion about zero perhaps had some hyperbole, but you really put yourlsef out with those odds!.

You misunderstand. You are to give me 10:1 odds, not the other way around. That's a nice margin to where you placed the chance of a taper.

>> I think at this point the smartest thing would be for them to technically start the taper, but at such a minor level that people will calm down: i.e. yes we reduced purchases to 80b.

They said they're thinking to reduce the rate of purchases this year, ending purchases over the timeframe of about a year. They said this months ago. What exactly were you expecting if not $80B, maybe $75B, starting out?

Nada, you are so genial. The number tossed around for the last several months is 65. http://www.bloomberg.com/news/2013-07-22/fed-seen-tapering-qe-in-september-by-half-of-economists-surveyed.html

Do you have anything to add in terms of predictions, or just banal replies?

Let me make this loud and clear the Fed is not going to taper. They are not going to reduce the 85 billion per month by one penny.

All they will continue to do is talk about it.

You can read about them talking about tapering for the next several months but it's all just posturing.

Boy that's a tough one, Ottawanyc. Option A is to parrot some Bloomberg flunkies trying to make a headline. (Hmm, what happens to the average when only half say $65B?) Option B is to just read what Bernanke said on June 19th and do some simple math:

"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear."

Lemme see. Taper $85B down to $0B over a period of 10-ish months. I'll go with a $8.5B reduction per month leaving the Fed balance sheet at a touch over $4T when all is said-and-done, Chuck.

>Chuck.

Ottawanyc, your name is Chuck?

and what does the taper do to Manhattan real estate prices? http://streeteasy.com/nyc/talk/discussion/35729-rate-rise-impact-on-manhattan-property-prices

I'm with INO on this one. They taper, but they do it so gradually it takes forever to get down to zero. I think they taper on mortgages the most, just because of the reduced refinancing and the need to keep a certain amount of mortgages free to trade in the market place.

Much of the concern is about investor psychology. Come September the Fed will still be expanding their balance sheets at an unprecedented pace. The Fed is mindful of halting an economic recovery period due to past policy mistakes.

Aren't most Manhattan buyers purchasing with cash or pristine credit anyways?

view RenterJoeys predictions and all other predictions. Case closed. Unfortunately Ottawa you were clueless on this one.

No taper and interest rates have dropped.

Yep, no taper, just more bubble.

While everyone on this board were basically taking the easy road and agreeing with everything they were reading

"I'll take the other side of that bet. We can even put the line generous against your "zero chance". Gimme 10:1 odds, you name the size."

I'm not a betting person but here are my predictions:

0 percent chance the Fed will taper.

100 percent chance the Fed will continue to talk about tapering

100 percent chance most people will think the Fed will taper.

100 percent chance that most economists will talk about the Fed tapering.

End result no tapering.

You da man RJ.

yeah! HOCKEY ROCKS!

No tapering does not mean more bubble. The fact is the jobs situationis dismal. Listen to Paul Krugman. This is not the time to cut back on debt.

Sure does W. Did you sell your AAPL? I got me some 470 and 475 weekly calls at 2:30.

No tapering does not mean more bubble. The fact is the jobs situationis dismal. Listen to Paul Krugman

Fact is the wealth effect where people spend more due to rising stock portfolios is very small, far less than seen from rising home prices. Another fact is that lower mortgage rates have not resulted in many new purchses but rather refinancing which regardless of the duration of QE will not continue.

There is no evidence that quantitative easing produces or has been responsible for an improving economic picture. It has however allowed people in the banking business to rake in bigger profits ; improved spreads in mortgage under-writing and more junk bond financing.

"It has however allowed people in the banking business to rake in bigger profits."

Good point. These types of policies essentially redistribute wealth to companies that receive the newly-created money first, including banks.

I first started following this board around '07. It's good to know that nothing's changed. Riversider knows as much about economics as back then, which is exactly zero. Actually it's less than zero because he repeats nonsense that msm chews and spits out for his consumption. Then w67 curses him out. carry on

ps. renterjoey wins this particular argument and rsd should shut

Hey 10024. Since 2007 w67 cleared a few mill on sprint and apple. The bubble gods are looking out for me. W67 gotz some serious leverage on some condo developments. So key to have the RE gods smiling upon me at the right time.

Carry on!!!! My name is w67. I'm a team RE member since 2013!!!!

"I'm a team RE member since 2013!!!!"

minion

"Riversider knows as much about economics as back then, which is exactly zero. Actually it's less than zero because he repeats nonsense that msm chews and spits out for his consumption.

Not a lot of substance in that critique, just ad hominem. I actually find Riversider's comments insightful.

Minions! That's a good one ericho. Let's say it together! Minions!

Let's go Team RE!

>Not a lot of substance in that critique, just ad hominem.

Oh no!

http://www.forbes.com/sites/afontevecchia/2013/10/08/obama-set-to-nominate-janet-yellen-to-replace-bernanke-as-fed-chairman-wsj/

I guess the Fed's asset purchase program ($40 billion of agency mortgage-backed securities and $45 billion of longer-term Treasury securities per month) will continue for a while. I have a lot of trouble believing that that program is actually helping economic growth and employment.

It helps the banks earn profits.