Say something really negative, something really stupid or ‘saw sawdust.’ Today’s headline opinion column in MarketWatch (“The Fed has boxed U.S. into a tough easy-money corner”) hit the trifecta.
As it pertains to saying something really negative, the article really hits the bull’s-eye, suggesting that when (and if) the Fed moves to reverse Quantitative Easing (QE), shrinking the balance sheet by selling off positions in Treasury and agency mortgage-backed securities, rates will rise, causing the Fed to lose massive amounts of money on their positions. This is possible: but so far, those who have attempted to forecast the rate impact of the removal of QE have come-a-cropper. I cannot recall anyone, who one year ago, was forecasting rates would drop on the taper and end of Quantitative Easing…but they did, big time, from near 3% on the TSY 10-year to a current read of 2.32%. So far the opposite has occurred with the Fed being profitable on many of the bonds purchased this year.
And now for something really stupid; the commentator in the above article, Satyajit Das, states: “Despite a conspicuous lack of success, central bankers persist with the same policies” (i.e. QE). “Conspicuous lack of success …” what galaxy does Mr. Das hail from?” If I’m not mistaken, the Fed started in with QE1 in November of 2008. Since that time, the unemployment rate has fallen from a peak of 10.5% to 5.8% and real GDP growth is estimated by The Conference Board to come at around 2.2% in 2014. Although this number doesn’t knock the cover off the ball, it is respectable versus those countries, especially the Eurozone, who did not aggressively pursue these policies. Remember, we continue to hear concerns about Europe slipping back into recession.
We ‘saw the sawdust’ again … another incident of slogging over the same well-traveled road on the evils of QE and the disasters it will spawn. Voila! The trifecta.
I might point out, for those who worry about bonds becoming good competition for stocks, the main conclusion of this tale of woe is that the Fed can’t raise rates any time soon or they will generate huge losses on their balance sheet. This is very positive for equity valuations!
What’s your take?
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