The Attack of the Taper | Q3 2013

The following contains excerpts from the July 18, 2013 President’s Letter from Roger Hewins.


Executive Summary

With the US equity markets seemingly headed for another good quarter, and with bonds continuing to offer record low yields, an attempt in May by the Fed to prepare the market for a potential future change in Fed Policy caused a short but significant panic, sending bond rates soaring and, as they say, “roiling the equity markets.” The end result was a sharp increase in long-term interest rates and a bad quarter for bonds across the board, while US equities eked out a gain. The surge in the US dollar exacerbated equity market losses abroad, although the losses were modest. Net net a more or less flat quarter for a broadly diversified portfolio, after all that excitement.


The Tapir

A tapir is a large browsing mammal with a short, prehensile snout, weighing up to 700 pounds and able to move surprisingly fast given its bulk and awkward appearance. Tapirs inhabit jungle regions in much of the world and, though it is an herbivore and normally shy of humans, this beast can be dangerous when provoked.


In his famous first book “Bring ‘Em Back Alive,” a huge best seller that catapulted him to world fame and was translated into many languages, Frank Buck tells of his adventures capturing exotic animals, including a fearsome encounter with a Tapir. As he was trying to medicate one of these animals, it made a sudden terrific charge, hitting him in the stomach with its head and knocking him down. Then the enraged beast jumped on him, pounded him with its hind legs, and dragged him around its pen. Happily, Buck’s native helpers came running to his rescue.1

Which brings us to Fed Policy this year…


The Taper

bernanke“Ben Shalom Bernanke is an American economist and currently chairman of the Federal Reserve, the central bank of the United States.”2

This normally gentle man roiled world markets this past quarter when he suggested that what has come to be called “The Taper’ might be coming at some point this year or next, when the Fed might, just maybe, not exactly stop buying bonds and printing money, but merely “taper’ their purchases somewhat. Panic immediately ensued.

So how did we get here, what is the background, and what comes next? And why do we own bonds anyway?


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The Attack of the Taper | Q3 2013

time to read: 2 min