We had some terrific economic news late last week. The 3Q GDP report and the November unemployment report were so strong that some are wondering if the data are credible, and are likely to be revised lower next month. The government reported that 3Q Gross Domestic Product jumped from 2.8% as reported last month to a whopping 3.6% in its second estimate last Thursday, well above the consensus estimate of 3.1%.
Then on Friday, we got another stunner. The US unemployment rate plunged from 7.3% in October to 7.0% last month. In addition, the report cited 203,000 net new jobs created in November. Both jobs numbers were significantly better than the pre-report consensus.
Given that these two key economic reports were so much better than expected, it’s only natural to expect that the discussion would turn to the Fed and the possible implications for “tapering” its monthly QE bond and mortgage purchases. At its October policy meeting, the Fed said it was awaiting better economic news. Well now they’ve got it!
So, the question now is, will the Fed move to taper at its next policy meeting on December 17-18? I was never a fan of QE in the first place, so in my view there is no question that the Fed should start to taper as soon as possible. That will be the thrust of our discussion today. But let’s start with some details on the latest surprising (but questionable) economic reports.
I’ll round-out today’s letter with an invitation to attend our next online WEBINAR with one of my favorite money managers of all-time, Wellesley Investment Advisors. This company manages over $1.5 billion in assets and invests in “convertible bonds,” which most investors know very little about – but should. The webinar will be on December 12 at 2:00 PM Eastern Time (11:00 AM Pacific).