I got the Taperworm

Today, the Federal Reserve announced its intention to taper the amount of their bond buying by $10 billion per month beginning in January — $5 billion in Treasuries, $5 billion in MBS.

Upon the announcement, the 10-year yield spiked to 2.9226% only to immediately drop back to 2.8738%.   As I type this, the 10-year yield is lower than where it was when the market opened today.   Isn’t it intuitive that less demand should translate into higher prices?

The venerable Dow Industrials (also known as the Nike/Visa Index) leapt from 15, 900 to 16, 055.   Isn’t it intuitive that less liquidity should translate into higher equity prices?

The Fed has also declared that they will hold rates “exceptionally low until jobless falls well past 6.5%.”   At least that is clear.

It seems that both stock and bond buyers are hungry; even though they’ve had plenty to eat over the past few years.

Perhaps they have a taperworm.

tapeworm-diet