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Federal Reserve: Tapering Expectations : Rules of Engagement - Keep Bubbling  ?
Sep 19 ( From Federal Reserve, Wiki ,MarketWatch,  Barchart )
The Situation

Yesterday was D--Day for the Federal Reserve...

​​​In addition to the policy statement, updated economic and market projections was to be released at 2 PM, followed by Chairman Bernanke's press conference at 2:30 PM.

​​The first thing market participants will be looking for is a decision on tapering and after economic forecasts...

Full ​​Federal Reserve FOMC statement

Federal Reserve: Tapering or Not That is Not the Question ? $MACRO, $STUDY, $FED

Consensus forecasts call for a $10 billion or $15 billion cut in the Fed’s $85 billion in monthly bond purchases starting as soon as
Yesterday sConclusion

​​Yesterday before the FED press release, my conclusion was...

​Let s realize that even if the FED start to do some tapering, the context will give them the golden opportunity to reduce their bond purchases without damaging the market expectations as a whole. So, in reality, tapering or not, that s not the question...

So To be, or not to be: that is the question can be put in our context;

​What will be their economic forecasts on inflation and growth, that is the question !


Must See From Reuters:

Charting the QE Era

Reuters Poll: Expectations on Tapering​​​


New and Updated Conclusion

Now my conclusion after the fact is even more with potential consequences:

Fed got the financial markets being addicted to continuous injections of tons of cash...

The Longer the FED keeps the Punchbowl available, the more Bubbling Consequeneces is Building Up.​​

It can just finish in a huge correction in financial markets with ​​​​terrible impacts...

If the FED think that keeping interest rates lower by .3to.5% will change the trend of the overall  US economy, then we should be scary as hell...​​​​

Either or:
1) The Economy is weaker than we think​
2)​​ The Economy is more leverage than we think
3) The Economy is a lot more sensitive to interest rates than we thought​

Either or, would you buy financial assets knowing those new facts!

​​The Market’s Unhealthy Obsession With Tapering
My call before Fed announcement was:

​​N​ot Only the Taper will Matter

​​For me, crucial to see their revisions in term of inflation AND Growth...


Three ​​Scenarios FIRST SCENARIO

1) No Tapering annoucement, inflation forecasts and growth revised lower

Then Bonds well bid and sell off in stocks

2) Tapering as expected​​​​ ( $10 billion or $15 billion ) and inflation revised lower and growth higher

Midly bullish on bonds and bullish on stocks

3) ​Tapering as expected​​​​ ( $10 billion or $15 billion ) and inflation and growth revised lower

Bonds Consolidate and Worst case for stocks ​​
Find below the last economic forecasts from the FED made in Sep 2013
Rules of Engagement

​​Rules of Engagement (ROE) are rules or directives to military forces (including individuals) that define the circumstances, conditions, degree, and manner in which force, or actions which might be construed as provocative, may be applied.

​​ They provide authorization for and/or limits on, among other things, the use of force and the employment of certain specific capabilities.

​​ In some nations, ROE have the status of guidance to military forces, while in other nations, ROE are lawful commands.

​​Rules of Engagement do not normally dictate how a result is to be achieved but will indicate what measures may be unacceptable.
Monday Morning Quarterback

First, the unexpected about ZERO Tapering...

The Market was caught completely by surprise by the FED in many differents ways:

1) ​​Expectations on Tapering was expected​​​​ to be between $10 billion to $15 billion

2) Small Speculators in the Fixed Income ​​market were the shortest in the last 5 years : ​​
​US Ten Years Bond Futures (TYA) - COT Small Speculators Still Way Too Short ?

3) The only way to keep a stock market happy was to print even more cash:
​​​SP500 Becoming a Monetary Aggregate ?

4) Large Speculators in the Emini SP500 futures was starting to short the market as shown by the chrt below




From Market Watch​
Market Impact

Bonds Way Up​​​: The iShares Barclays 20+ Year Treas Bond (TLT) were up 1.2% on the day on September 18 as shown by the chart below...
Stocks Way Up​​​: The Sp500 Futures (ES_F) were up 1.2% on the day on September 18 as shown by the chart below...
​​​5) ​​The Federal have been always too bullish on their economic forecasts:
​FED Optimistic Forecasts...