Tim Holland at Brinker Capital is always worth a read. This is what market commentary should be all about: witty, actionable and above all else, willing to take sides when the data points argue in one direction or another. Here he is on the Fed:

We think three questions are top of mind among investors when it comes to the Federal Reserve’s securities purchase program (for more than a year, the Fed has been buying $80 billion of Treasuries and  $40 billion of mortgage-backed securities each month with an eye toward keeping rates low and stimulating the economy, an undertaking that has helped leave it with more than $8 trillion in assets on its balance sheet) and those are:

• When will the tapering, or the unwinding of the program, commence?
• When tapering commences, how much will the program be reduced and how will that play out (e.g., will the Fed buy less Treasuries or mortgage-backed securities, or both)?
• How will tapering impact the bond market and yields?

We feel comfortable taking a shot at the first two questions, believing that, barring a dramatic slowdown in the economy, the Fed will begin tapering this year and will incrementally reduce its purchases of Treasuries and mortgage-backed securities.

When it comes to the third question, we are a bit less comfortable offering an answer; most folks seem to believe that once the Fed begins tapering, bond prices will move lower and yields higher – which makes sense as a massive buyer of Treasuries and mortgage-backed securities will begin stepping back from the market.

But one might ask, if the start of tapering means monetary policy is tightening, could bonds catch a bid and yields move lower as investors price in slower economic growth and lower inflation as a result of the Fed taking away – albeit gradually – the proverbial punch bowl?

We think a good argument can be made for either outcome, and we will be monitoring Fed policy and the bond market closely into year-end.