Since the second quarter of this year, markets haven been speculating whether tapering will happen in September, October or any other month, and all the surveys are based on this discussion. Even if that is an important question, what we know is that the FED will be very cautious about the speed of tapering, so maybe the relevant question is how fast the FED is going to slow the pace at which they buy treasuries and MBS in the market, and how much time it will take to normalize the monetary stance. When QE1 and QE2 were announced, we knew in advance the beginning and the end of them, this time around we do not. What matters as well are the tweaks that the FED could do to its language, specially in its forward guidance (change in thresholds).
Probably the FED will taper in September, and not because they are very happy with the evolution of the economy. They will taper because even if inflation is running below historical standards, inflation in financial assets seems to be excessive in some cases, as reflected in the last few months in the sell-off of some financial assets, such as gold, high yield currencies, EM assets, etc. They want to have enough time so the markets can digest the withdrawal of stimulus that eventually will come, but at the same time, they can not afford any policy mistake and they will try to smooth the transition to tighter monetary standards. The recovery in the US seems to be robust enough to be sustained, but at the same time, the global economy has suffered some structural changes that will not allow this recovery to be as fast as we would wish.
In terms of trading, my favorite strategy would be to take advantage of this environment where volatility and correlations are low but at the same time valuations seems to be still stretched in a variety of assets. Differentiation and relative value should continue to pay in the next few years.
