The Timetable for Tightening
Comment of the Day

June 21 2013

Commentary by Eoin Treacy

The Timetable for Tightening

Eoin Treacy's view The rather terse way in which President Obama announced that Ben Bernanke will be giving up his position at the Federal Reserve has caused speculation as to what might have caused this uncharacteristic lack of composure. The fact that it preceded by a single day the announcement of the Fed's timetable for the tapering and eventual removal of QE suggests the announcement was not coincidental. This got me to thinking about other timetables.

The Affordable Care Act will reach an important milestone on October 1st 2013 when some of its key provisions come into force. Considering the fact that this will also coincide with significantly higher health insurance premiums, the President might be justifiably worried that the concurrence of tapering extraordinary monetary policy could have a negative effect on perceptions of growth potential.

The Proshares Ultrashort 20yr+ US Treasuries ETF (TBT) dropped from a peak near 300 in 2008 to range above 50 from May 2012. It broke out to new 12-month highs yesterday and a sustained move below the 200-day MA, currently in the region of 65 would be required to question potential for further upside. (Please note that this type of instrument will perform best when yields are rising in a momentum move. Ranging to lower yields will adversely affect its performance as costs multiply.)

On the assumption that the US government's cost of borrowing continues to rise, the ability of the administration to engage in radical programs that potentially act as headwinds to growth will be curtailed in no uncertain terms. It looks like President Obama's big spending plans will be a lot more difficult to implement for the remainder of his presidency which may explain his ambivalent attitude towards Ben Bernanke.

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