• 8 hours Is $90 Oil Possible? An Interview With Jay Park
  • 1 day Billions Of Dollars Are Flooding Into The Flying Taxi Space
  • 1 day Is This The Most Important Energy Project Of 2020?
  • 2 days Startups Are Dying To Give You A Better Death
  • 2 days U.S. Restaurants Are Struggling With Rising Labor Costs
  • 3 days The Banking Bonanza Is Just Getting Started
  • 3 days How The Trade War Ceasefire Will Impact The Energy Industry
  • 4 days Who Is The Most Dangerous Person On The Internet?
  • 4 days SoftBank Sees First Quarterly Loss In 14 Years
  • 6 days Prepare For An Oil Glut In 2020
  • 7 days Why A Strong Yuan Is A Promising Sign For The Trade War
  • 8 days What Would You Sacrifice For A Debt-Free Life?
  • 8 days Shareholders Urge Major Bank To Stop Funding Fossil Fuel Companies
  • 8 days Tariffs Are Causing A Slowdown In U.S. Manufacturing
  • 9 days The Great Silicon Valley Migration Has Begun
  • 9 days 3 Oil Stocks Paying Out Promising Dividends In 2020
  • 10 days How Fractional Trading Is Democratizing the Stock Markets
  • 10 days Why Smart Money Is Looking To Short Aramco
  • 10 days Gold Major Looks To Hike Dividends By 79%
  • 11 days Three Reasons Precious Metals Are On The Rise
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  1. Home
  2. Markets
  3. Other

The Taperie is Here

Based on the January 2013 Market Overview report.

2013 was no doubt quite a bad year for gold investors. The huge sellout was a primary reason for this. Yet despite this major change in long positions, the outlook for gold does not seem bad. In the second part of 2013 a big debate about the central bank's policy was initiated. It was all about Bernankish interventions in the financial market, which resulted in the explosion in the Fed's balance sheet from billions to trillions of dollars. Since 2008 it was no doubt a huge transformation, and one that had a long lasting influence until the present day.

As we last presented our Market Overview the Fed decided to adjust its activity in the financial markets. As we've also seen the decision was much in the spirit of "how much do we have to change in order not to change anything?" The very serious issue to be discussed was the so called "tapering". And apparently it finally happened. The Fed decided to back out from its policy of expansionary buying programs. What does this seeming backing out look like today? We can read in the Federal Open Market Committee statement in December 2013: "Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month".

In other words, every month the Fed will print 5 billion dollars less than in the past to buy additional government securities, and 5 billion dollars less each month to buy additional private assets. That gives us total of 10 billion each month less than in the past, 120 billion less printing every year. "What a great sum of money, what a major shift in policy" - one would be inclined to say, wouldn't he? Now the Fed is going to print 75 billion dollars, not 85 billion dollars as it used to. But wait a minute...

That's like saying that a bath tub is getting empty, because the water is coming in at a 10 percent slower pace. Which would obviously be nonsensical. A reduction in future buying of government and agency assets can be considered as some form of reduction, but let us not be misdirected. The Fed is still promising to print and will print 75 billion dollars each month in order to bid the prices of government securities and private assets. That will give us a total of 900 billion dollars for the whole year - those additional green backs being churned out in order to stimulate the economy. This is no tapering at all. This is a very small friendly creature, which should rather be called "taperie".

Thank you.

 


The above is a small excerpt from our latest gold Market Overview report. If you're interested in my detailed analysis, please subscribe and read the full version.

 

Back to homepage

Leave a comment

Leave a comment