Salient to Investors:

Mohamed El-Erian at Pimco said:

  • The Fed’s determination to taper puts more risk in risk assets, such as stocks.
  • The safety margin built into risk assets is much less now.
  • The Fed is wary of upsetting financial markets, as it sees financial market strength as a key to boosting the economy. The Fed cannot get to its economic objectives without going through the asset markets, so it feels obliged to continue to support the asset markets, not as an end in itself, but as a means to an end.
  • The Fed’s October minutes cited modest growth now but faster growth ahead – the same position it has taken virtually every time since the 2008-09 financial crisis.
  • It is very difficult to predict when tapering will begin, especially with a FOMC that is all over the place, but it will absolutely begin over the next 12 months.
  • Buy bonds at the short end of the yield curve and sell at the long end.

Sam Coffin at UBS Securities said it sounds like the Fed is moving closer to tapering and wants to signal it will stay easy after the tapering has begun.

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