Jun

27

 In a departure from my usual micro market type of post, I have been looking at the 'Fed Taper' issue from the perspective that the Delphic Ones at the Federal Reserve must find (dare I say, coerce) a marginal long term buyer of the securities on its balance sheet to exit the process with reputations intact and without market disruption (remember 1994 anyone?)

This constant litany of impossible to pass 'stress tests' coupled with current and coming regulatory overreach into core banking activities may make the ownership of any type of assets other than Treasuries very difficult for banks as they are currently structured. The evolution of Japanese banks from financiers of global growth in the 1980's to earning a few basis points on the 20 year JGB is a reasonable analogy of what is in store. This has far reaching consequences for the bond market if remotely in the ball park.

The need of governments to create 'stability' in economic systems that thrive when there is instability is an ongoing deleterious influence on banks. It happened in Japan, is happening in Europe and appears to be beginning in the United States.

Without instability/ volatility there is no growth. The banking sector must take risk and be rewarded for it. The above is so full of holes I am almost embarrassed to post it, particularly as it is so far off piste from my usual literary excursions to this site.

It is, however, a potential long term influence on the US bond market so I thought it might be worth hitting send.


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