The original goals of "extraordinary measures" of monetary policy have been met. The ridiculously hopeful "credit easing" of 2008 has morphed into twisting, promising and purchasing virtually all the US Government and Mortgage Securities created over the last 5 years.
So long in Wonderland, casual observers and Fed incubated equity "geniuses" alike now look to Jon Hilsenrath for clues the bailout (yes, that's what its been) will end. Back in the old days, before the FOMC publicly told you exactly what they were doing, strategically important messages were placed on column 6 of the front page of The Wall Street Journal. The position, the by-line and the topic would combine to SIGNAL market participants of policy change. One of the most notable examples was Manny Johnson's warning of a credit crunch developing in 1991. The post foreshadowed the then unheard of drop in the Funds rate to 3%. This weekend, the WSJ under Jon Hilsenrath's tag on columns 5 and 6 ! read Fed Closes In On Bond Exit. (link) Contrarian Corner readers already know where we stand on this issue. We are emphasizing, in an era of too much openness, the significance of this article.
As we said last week, participants should focus on halt not taper. The word in the title is exit. The policy tool is LSAP and the LS stands for LARGE SCALE. The reality is there are NO promulgators of Small Scale anything, anywhere anymore. The Fed has gone big and now must go home. The era of extraordinary measures is ending, what follows will not be ordinary in any way.