Nope. I did not see this taper coming. Caught me by total surprise.
It was the right move by the Fed (just happened to be 3 months too late). It’s funny, I’ve never been more wrong on a macro event, and more right being long the market (we had 8 LONGS on in Real-Time Alerts, 1 SHORT) at the same time.
It’s called being right for the wrong reasons.
The Fed is one big Gong Show. No two ways about it. None of this central planning stuff makes any sense. Accept that and trade your way out of whatever you need to.
As Andrew Huszar (He’s the former Fed MBS guy I interviewed the other day on HedgeyeTV and author of WSJ op-ed “Confessions of a Quantitative Easer”) tweeted, “The December taper is clearly a legacy move for Bernanke. Don't read more near term moves into it. Yellen was QE3's biggest advocate.”
Being flexible when the macro game changes is more critical than ever. Since I'm not as smart as most pundits, I need to (and do) change my mind faster than the consensus herd.
On a related note, can you say all-time high? As we’re fond of saying here at Hedgeye, all-time is a long time. 1811 on the S&P 500? Buy-the-Damn-Bubble #BTDB anyone? .
There are great short selling opportunities now in bonds (or stocks that are like bonds - hint: MLPs…check out our Hedgeye Energy Ace Kevin Kaiser for some insight on that mess). Fed tapering is bad for bonds -we will cut the asset allocation to that Bernanke Bubble back to 0%.
The volatility in the Fed's decision making as of late should perpetuate more market volatility. The VIX is making another higher-low; don’t get stuffed chasing the highs. No way I buy Gold on this.
Bernanke remains focused on The Lagging Economic Indicator (unemployment rate); Basically Bernanke is recapping all the Q313 data that he missed - i.e. he should have tapered in September.
Meanwhile, the Fed is increasing its growth forecasts just as Hedgeye is cutting ours; and the Fed is cutting its inflation forecasts just as Hedgeye is raising ours.
Bottom line? The entire bubble is going squirrel. An epic end, to an epic year.