Guiders 1 - Bond Vigilantes 0 - Guidance minus 1.

We would like to think that our last post was the reason  the FED held back on tapering, having taunted the CB'ers with our "You can't pull it off, you don't have the respect of the market for your commitment in the face of anything" taunt. But we doubt that very, very, very much.

TMM's polite "front of house" way of reporting the event is -

The FOMC is now on the record that they are unhappy with 10y yields at these levels given the current backdrop, at least for now and that a 7% UER rate no longer means no more QE. These dovish shifts were surprising because the data appears to have come in inline with the Fed’s own projections, and Bernanke said so. The Fed seems most worried about the rise in mortgage rates and potentially the fiscal issues ahead, and it appears they want to take out some insurance against that. It’s not clear exactly what will ease their concerns, so until the Fed signals otherwise, yields may be range bound.

Positioning suggests that the rates move could move further. But we note that relative to the FOMC’s own projections, the front end now looks fully priced. The median FF projections for YE 2015 and 2016 are 1% and 2%, respectively. EDZ5 and EDZ6 are trading at ~1.3% and ~2.4%. Adjusting for the historical 15bp spread between 3m Libor and Fed Funds, that leaves a risk premium of 15bps and 25bps, respectively in those contracts.

And the impolite behind the scenes TMM response is - WTF?

This has lifted the phrase "Don't fight the FED" to a completely over the top "Don't f**k with me you m*fkr" response. But there is a paradox here. If forward guidance is meant to be taken seriously then how come the derivative of forward guidance, namely forward guidance of forward guidance can be so totally and utterly shot down in flames. How can you, Mr B., expect us to believe we will end up where you guide us if you let us go so far off the path of expectation in the case of QE. You had the chance in August and early September to guide expectations of QE but no. You watched us all the way to the cliff edge and then nudged us over. A backlash against the assumption of the Hilsenrath leakage days?

So well done Mr Moderation. You may well just be trying to say "3% is too much in UST10y" but you are going to have to pull off some particularly wordy magic in your statement to abate the headlong spew in markets back into everything that has drifted off since May's first mention of tapering.

TMM are prepared for carnage, or rather Bernankage (that's going in the glossary together with Carneyage) as the world lights celebratory cigarettes in the global credit crisis room that has just had another 300psi of gasoline vapour pumped in, by buying the ying-yang out of yen, buying the cahoonies out of carry, buying the 'eck out of equities and the 'emming hell out of EM. And as for Gold - We can hear the roars of "toldjasos" echoing from the cabins in the woods. Staunch that, Florence Nightingale.

Ben's parting gift to central bank history is to go down as the FED chair that made Greenspan look not so much a hawk, but more a velociraptor.

Fed guidance -

Ready Reckoner on Syrian Negotiators

Team Macro Man have drawn up a quick ready reckoner for use when considering the Syrian negotiations.

FX Coin Vortex

TMM's simple explanation as to why the BIS FX volumes appear to be so large. The FX market has become a coin vortex. It's just the same coin flying further around the electronic market before it finally finds a home.

Rubbish Month and Rubbish Guidance.

It's time that the long absence is explained. 2013 has been a survivalist year for TMM and we have seen some changes that we have so far overcome but are now struggling with. CPMPPI and I have both experienced dramatic changes in our employment situations leaving CPMPPI moving on to a career that precludes him from continued contribution, Nemo is buried up to his eyeballs in his own job and as I now find myself looking for employment I am not sure if I will be able to keep it up either. So that leaves new recruit "GMS" and I feeling a bit like Custer and his mates. Throw in a surprise death in the family which involves diversions of practical response as well as the usual emotional support and really the last month has NOT been the easiest to contend with.

It has also led to feeling of a disconnect between self and market. Micro plays and nuances are not becoming discernible from this altitude and the big macro landscape appears not really having changed dramatically.

US data isn't slowing. The payrolls print was the only weak one in the past few weeks. ISM, non-mfg ISM, jobless claims, are all still super strong.

China is producing better numbers (note we don't go further to judge the validity of those numbers).

EM is stabilising and everywhere starting with "Ind- " is looking less panicky to the point of becoming bounce attractive.

Europe is seeing PMIs going ballistic. Though we note concern that PMIs may be delinking with regards to GDP but we would like to think its more like there was a 'jump' in the linkage because production couldn't go any lower, while spending could (due to austerity). I.e. EU GDP growth is likely to continue higher, following the PMI prints.

Syria is what we would like to coin as (new term here) a AOAO trade (Armageddon On, Armageddon Off) and so other than buying cheap tails it isn't worth playing in the belly of probability. Much like US debt ceilings and democrat/ republican budget posturing - Though it will be interesting to pick the bones out of how much a Syria strike will assuage Republican gun toters and arms manufacturers towards a less confrontational budget debate.

The main topic of interest is the steepness of yield curves and how much the tsunami of bond sales can percolate through linear interpolation into the territory of forward guidance. It's a big battle that's being waged in the rates markets across the world. The bond vigilantes vs the forward guiders. To clarify things a bit, let's add a bit more detail to our canvas. In the red shirts in the long end corner , the sellers of bonds, the economy bulls, the Larry Summers cheerleaders who are so trigger happy and hate bonds so much, they just keep on selling. In the blue shirts in the short end corner the cowering Central Banks Forward Guiders, bruised, battered, but still trying to keep the risk premia down in their short ends.

What is more the CBers in exiting QE have basically walked over to the vigilantes and handed them a script of every punch they plan to make. whilst also leaving themselves with nothing new to throw at them apart from a Muhammad Ali type of slating "I am the greatest, I am going to nail you" or rather as Basci said "Believe us and you will win" - which they are hoping will lead the vigilantes taking them at their word and throwing in the towel rather than howls of laughter and a pummelling. Unfortunately the promise of forward guidance is binary, rather like that old Russian saying on pregnancy, you either forward guide .. or you don't. You can't have a bit of forward guidance maybe, because promising forward guidance gets everyone leveraged and beautifully long of the short end but as soon as they realize that you maybe didn't really mean it that way they panic and you have a mad rush for the exit leaving a mess.

The problem is that in doing so the CB'ers are effectively committing to control the unknown and for that reason we can't have confidence in them. And as soon as we don't have confidence in them they are then trying to control the unknown, which leads to a further collapse in confidence.

So CB'ers - We can't believe you whilst you promise us short term rates to stay low in an uncertain future and still have us believe that you are adaptive to future conditions enough to achieve your mandates.

It's a bit like your teenagers promising to do what you ask for the next year in return for a ride to the cinema and we know what the chances of that are.