Anthony Peters
SwissInvest strategist
The battle for the 16,000-point Dow and the 1,800-point S&P continues apace with the sellers gaining the upper hand again on Wednesday. As ever on down-days, the T-word took centre stage but there were some other stories afoot with which I am kept up to speed with thanks to the most excellent service of David Fuller and his merry men at In Touch Capital Markets.
According to ITC, there is loose talk around the Street concerning the possibility of Fed Chairman Bernanke stepping down as early as the FOMC meeting on December 17th, should Janet Yellen have been confirmed by then. That would necessitate a confirmation vote by Congress before next Monday which is possible but not probable. That in turn would strengthen the case for a commencement of tapering on Tuesday or Wednesday, respectively.
This all dovetails somewhat with a New York think tank report which suggests that the process of winding back the speed of bond purchases could set in either in December or, a not often mentioned date, in January as the strength of the recovery doesn’t really justify waiting until March.
One thing we did agree on was that the duration of the US debt stock is worryingly short, especially when compared to that of the UK, but then concluded that despite the potential volatility in debt servicing costs, the refinancing risks are low enough to be irrelevant.
Personally, I don’t think that it makes a ha’penny’s worth of difference, market-wise, when they begin but I get the feeling that the lack of any other usable information has elevated this event to a relevance far above its station. The volatility and inconsistency of economic numbers over the past years has made reading and interpreting them most difficult and in many cases not consistent with subsequent market movements. Investors and traders no longer know when and under what circumstances to turn themselves into headless chickens. Then along comes tapering which enables all and sundry to put a big “T” on the red panic button and all is well again.
This time last year it was all “Fiscal Cliff”. On mention of the word and stock market sold down 1%, only to then climb back up again. This proves to me that most investors love the rising market but remain uncertain whether the lofty levels at which stock markets are trading are justified by anything more than the ultra-low discount factors which can currently be applied to the future cash flows.
On central bankers, Aunt Augusta and US debt durations
I dined last night with my tame central banker who was staggered by my reluctance to enter into what have over the years always been feisty exchanges on macro-economics and monetary policy. I think I have said most of what is to be said, nearly all of which has eventually proved to be wrong. However, we did discuss how we are investing our pension money – we are neither of us spring chickens – and concluded, like it or not, that we must simply “hold our noses and buy”. That, dear friends, is the output of two people with a joint IQ of going on 300 and 60 years of market experience.
Anyhow, it is nearly Christmas and we generally had more interesting things to talk about than whether Carney the Magician has got it right or is just lucky or whether the dynamics are such that you could put my Aunt Augusta in the Bank of England without causing any disruption to the current rate of economic recovery.
One thing we did agree on was that the duration of the US debt stock is worryingly short, especially when compared to that of the UK, but then concluded that despite the potential volatility in debt servicing costs, the refinancing risks are low enough to be irrelevant. Another potential worry not worth worrying about. The conversation inevitably turned to Europe but never got much past Francois Hollande. As discretion is the greater part of valour, I shall desist from expanding on that part.
That brings us up to date. Other than European CPI numbers, there’s not much on the slate for either today or for tomorrow and the week looks like it will simply drift into the week-end with nothing more disruptive than a healthy dose of seasonal drinky-poos tonight and tomorrow.
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Alas, for me it is that time of the week again – a day early – so all the remains is for me to wish you and yours a happy and peaceful week-end. I am off to Santa’s Cave tomorrow in order to collect my tree and other decorations and to do some shopping myself followed by a seasonal turkey lunch and a drinks party in the evening.
And that’s only Friday 13th! Yikes!