Comments (2013-09-18)

• I was surprised by the lack of tapering today. Tim Duy did a good job parsing the message of the Fed.  Tim points out that the Fed has created a communications mess.
  

  The downside is that there has been a clear communication failure on the part of the Federal Reserve, and this should not be overlooked in the hysteria that will surround this announcement.  If they are concerned about the impact of higher rates now, the Fed should have worried a little bit more about the impact of talking about tapering two months ago.  They should have pushed back harder as the growing expectations for a change in policy.  The data never really supported tapering; I think we were mostly tripping over ourselves (again, myself included) to justify the path toward tapering because Federal Reserve speakers were giving little reason to think otherwise.

  It may be that the Fed wanted to inject a little volatility into the market to prevent the buildup of excessively large positions. In that case, mission accomplished.
  

• Fiscal policy is one factor pointed to by Tim Duy leading to the "no taper" decision. Stan Collender argues that a government shutdown appears to be in the best interest of House Speaker Boehner. It appears that this will prove damaging to the Republican party brand, so it would probably be a short shutdown. There should be more clarity on this front by the next Fed meeting.
• The 10-year Treasury is now searching for the bottom end of its trading range. It could be close to current levels, but there are probably a lot of shorts that are looking to cover. With no fundamental news to key off of, technicals will rule for a couple of weeks.
• Ambrose Evans-Pritchard of the Telegraph rips into German Finance Minister Wolfgang Schäuble. The euro is not pegged to a physical commodity, so the European bureaucrats did not completely replicate the failed Gold exchange standard. This means the ECB has the capacity to kick the can down the road indefinitely. That said, governments along the periphery are ceasing to function in the interests of the population, and extremist parties are moving into the vacuum. The risk to the euro is political, not financial.

(c) Brian Romanchuk 2013