Enough with the Ben bomb head scratching

Time to get real, or a t least try.

The taper brigade got the rug pulled out last night as I expected. Not only did Ben disappoint, he went full-on the other way by pumping up QE.

We got a round of dollar selling that due to a mix of ingredients, ended up a rout. The moves last night and today remind me of a Newtons cradle. The force swings to the extremes each way gradually reducing as time goes on.

So has anything materially changed since last night?

Fundamentally, no. The call has always been that QE will reduce when the data says so. The problem is, and this is something I was discussing with Adam only a a day or so ago, that I believe some or many in the Fed are getting anxious over QE at it’s current level. It’s one thing to come out gung-ho at the beginning of the crisis and make a statement saying that QE will be unlimited but it’s another thing to find out that QE is actually becoming unlimited.

It’s not meant to be unlimited (in a time sense). It’s meant to help the economy repair and recover before falling to the wayside. The balance sheet is growing and the economy is not picking up as he would hope. That has surely got to put some doubt into his mind.

Whether Ben is starting to feel anxious is open to debate. On the surface he seems not to be but the fact that he brought tapering to the foreground in the first place may tell a different story.

He wants the market to be ready for tapering and rate rises and that’s all well and good but the market is now straining at the leash for it.

So we’re back in the flux of the will we, won’t we game. The data will be the driver but it’s the anxiousness of QE that may be playing out in the market now. We know the market hasn’t got patience. We know the market is starting to adjust to the end or reduction of QE.

At some point soon, maybe tomorrow, we should be back to some sort of normality and we can get back to trading the data.

One sobering thought for you though, if the Fed are getting hot feet over QE levels now, and the market is gearing up for the exit, think what might happen if the data really deteriorates and the spectre of increased QE rears up.

Author: Ryan Littlestone

Ryan Littlestone has been working in financial markets for more than 20 years. Wide-eyed, he stepped out of Bank station in London to join LME founding member Rudolf Wolff where he worked his way to the main order desk and brokered customer orders to the LME floor and across virtually every global market. An opportunity to help set up and run a new LIFFE floor operation saw him catch the trading bug and it wasn’t long before the pull of the pits was too great to refuse. He became a ‘local’ and has been trading his own account for more than 11 years.

10 Comments

  1. I’m in a generous mood (having banked good gains before the w/e) , so I’m going to tell you all about a “magic indicator” that will give you a 100% guaranteed insight into whether QE tapering is imminent. The “magic indicator” is called the SP500 – when it is making new highs, rest assured that tapering in any shape or form is nowhere to be seen.

  2. I think this whole idea of full transparency from the FED is creating all the crazy volatility….I prefer the days of Greenspan …he said alot..but you had no idea what he was saying…you had to figure it out..bring back FED SPEAK…bring back trending currencies based on interest rate differentials…bring back the days when it was real easy to make money in FOREX…LOL

    Personally…I dont believe anything the BERNANKE says anymore….. Im looking at it from the view point that the FED wants to taper..they just do not know when .. things are improving ..we are starting to move along..though slowly..by ourselves..time for the training wheels to go. The data is all I care about…we know what the FED is looking for……ill take the BERNANKE speeches for opportunities as the market over reacts……

  3. People make mistakes, people get in too deep, And they just keep going full tilt, all in, and in denial. Ultimately there’s a crisis and bag holder.

  4. Hey Ryan,

    Welcome back. I think you are right here.
    I think the end result of yesterday’s speech/clarification would be good data is and bad data is bad.
    I guess currencies may now trade based on data..

  5. Thanks Kash, it’s good to be back though with the funny business with Ben I wish I was back on the beach :-D

  6. To be fair Nick, I’ve always felt he’s been straight down the line (give or take the odd moment) ;-)

  7. pretty much on the same page, Ryan

    winding down for a few weeks to get out in the summer and away from the psycho bs of the FED and its endless Alice in Wonderland Humpty Dumptyisms.

    the argument for this QE was the market needed FLOW vs Stock..the rationale to continue to print was conveniently justified by soft employment numbers/low labor rate participation…….but if the FED really was in the business of getting the economy up probably a much more effective approach would have been to bypass the primary dealer banks and fund the Small business Admin with the ‘free’ money so low interest loans could have gone directly to Main St as opposed to WS

    if you think about it the whole show yesterday was probably pre- scripted ….from timing post FOMC minutes to questioner to questions asked.

    it is all fake and made up to suit the moment, but that has to be taken into consideration when aiming to be on the right side of price…..

    separating the trading from the juxtapositions of assuming some reasonable semblance of wanting social responsibility and fair and honest markets the BB QA did give me a nice opp to get out of losses and back onside with uj shorts

  8. For more prospective on the Bernake Bomb take a look at the carry trades. None of them are positive and AUDJPY is still below its 200MA. If the bomb would have been positive I would have expected the carries to take off but they sold off. Take a look at the EMB (emerging market bond ETF) it hasn’t reacted all that much and the EEM looks like it will print a shooting star. The tapper problem is about leverage and removing leverage. These products will show the increase in leverage and decrease in leverage more than any other product. The SP 500, I don’t think is going to act like a good indicator in this because there are lots of other moving parts that are involved in the stock market. Most important is it is summer. The same thing seems to happen again and again. Last summer I got slaughter because of some tape bomb out of EU that sent the EURJPY rocketing higher and reversed a day later.

  9. The market has to question what is going on for the reason that who is next in line. Yellen or some other dove appointed by Obama administration.
    There is no way out of this any longer, there are alternatives to the USD and those currencies do not have people running them who take markets for granted, living in some intellectual realm divorced from the impact they have upon someone else’s money.
    Weidman this morning made the pitch, just bring on over your reserves, we thank you very much.
    To say such a stretch of reality that the ECB is watching for future inflation in the face of clearly deflationary forces at play across Europe is a statement meaning we are here if you have had enough of the Fed.
    Afternoon US, the USD selling started. Bang up budget figures and the market says with its feet, time to get out of Dodge.

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