26 Aug 2021

Taper Trouble

Jackson Hole has had a case of Covid, with the result that, for the second year, it will be held over video. I’m sure the world’s central bankers were awfully disappointed, but the planet will thank them for the kilotonnes of CO~2~ production avoided.

I think it’s hard to beat Alex Manzara’s commentary on Fed matters. His recent piece is no exception. He is saying that the Fed won’t risk another Repo Madness (2019) episode again, at least in the bond markets. He has said that the Fed will do everything in its power to pin short-term rates to the floor, which should naturally lead to a bit of steepening. I’ve been waiting for this for a while. We’ve seen a few basis points increase in the 10Y recently, to approaching 1.4%, but I can’t see that long-duration rates are going to exactly shoot up.

Manzara reckons that the slowing in the growth of QE might hit the equities market. This seems more plausible to me, but remember that Manzara is a Fixed Income guy, not an equity guy, so he is a tourist as far as this asset class is concerned. Sentiment still holds that FAANG stocks can only go up in price. It’s rational to think that this must be true, but irrationality can last a long time in the markets.