Updated: Four charts to track timing for QE3 tapering | Calculated Risk
Includes actual & projected data for the Fed’s tapering targets:
1. Growth (Real GDP)- 4q13 projection +2.3-2.6% vs 2.0 target
2. Unemployment- YE13 projection 7.1% vs 7.3 current, 6.5 target
3. Headline inflation (PCE)- 4q13 projection +1.1-1.2% vs 0.92 current, 2.0 target
4. Core inflation (PCE)- 4q13 projection +1.2-1.3% vs 1.19 current, 2.0 target
[Previously & See also]
Rail traffic weekly: Incomparable y/y data | Association of American Railroads (AAR)
Weekly traffic +10.8% y/y due to 2012’s Hurricane Sandy; ytd growth increases to +1.5%.
Fed may lower dual mandate targets | Jeff Cox (CNBC)
To offset the negative effects of tapering, FOMC may lower their unemployment target from 6.5 to 6.0% and raise inflation from 2.0 to 2.5% simultaneously with their QE taper–effectively extending ZIRP through 2017 & keeping rates below normal into the early-2020s.
[Fed policy is starting to react to my demographic assessments. This has the potential to change my bearish 2014 outlook & form the blasting cap at the end of a generation-long experiment with a disinflationary credit boom; makes me expect curve steepening with sweet spot <5 years–don’t forget that <2y yields actually fell during the summer’s rate rally. See also: “Optimal Control” (below)]
#Bullish $SHY $CSJ $SJNK
Massive equity outflows (November 1, 2013) | Bank of America Merrill Lynch (BoAML)
The week ending 11/1 saw the 4th largest net selling of stocks since 2008, with MER clients unloading net $2.7B in US stocks, while $SPX was flat. Institutional clients led the liquidation (3rd most on record); retail sold a little; hedge funds were marginal buyers.
Ytd, retail & hedge funds are buyers, with institutional unloading the most since 2008.
Cyclicals (-$11.5B ytd) were heavily sold: sectors $XLK $XLF $XLY
Defensives (-$1.25B ytd) selling was light: $XLI $IYZ $XLU
[Buys more time for the rally to transcend into #Euphoria. See also: AAII individual investor survey shows equity allocations (66.3%) at 2007 highs, cash at 2000 lows (16.9%)]
Janet Yellen’s approach to monetary policy: “Optimal Control” strategy | Business Insider
From her November 2012 speech:
The new Chairwoman’s econometric model derives an optimized policy path (as opposed to Fed Funds Rate using Taylor Rule) to usher the economy to 2% inflation & 6% unemployment targets, given equal weight to each mandate & as little deviation as possible.
Thus, giving the public explicit guidance to gauge expectations, the Fed will fight unemployment & inflation more aggressively, maintaining ZIRP until 2016:
“This highly accommodative policy path generates a faster reduction in unemployment than in the baseline, while inflation slightly overshoots the [FOMC’s] 2% objective for several years.”
Senior loan officer survey (3q13): Credit demand flat & lending standards eased again | Federal Reserve (Fed)
C&I demand decelerates to flat with lending standards still loose & credit spreads extremely tight; small business loan approval rates rose to alltime high 17.4% (+50% y/y).
CRE demand falls just off highest level since 1998 with lending standards just off 2005 lows.
Subprime residential mortgage demand continues to spike higher, despite a corresponding tightening of standards; prime & Alt-A demand plummet, despite loosening.
Consumer loan demand decelerating, with auto loan demand now flat & easing cycle altogether waning.
[Still worried about signs of subprime stress, albeit less frothy; consumer is definitely tapped-out. See also: Downgrading consumer spending forecasts for holiday shopping season & Peak near term household consumption]
#Credit cycle #Credit bubble
Junk bonds will outperform senior bank loans | Seeking Alpha Market Currents
Read the fine print:
Floating rate loans’ interest rates are tied to 90-day LIBOR, which will not increase as long as the Fed Funds Rate remains at ZIRP (e.g. LIBOR90 fell -2bps from May-June). Also, most loans have 150bp LIBOR floors vs 26bp current rates, which means LIBOR90 has to rise +125bps before these loans’ rates adjust higher.
$HYG $BKLN #Leveraged loans
Buy cheap Closed-end bond funds| Stifel Nicolaus
Good opportunity in high-yielding #CEFs trading at >12% discounts to NAV, including:
$ERC $MCR $MMT $FT