Friday, February 22, 2013

It's The Economy Stupid: Uncertainty at the Fed

Bill Gross’ Tweets


Gross: Bond Vigilantes are no more. Central bankers are the masters of the universe but the question is: Are they vigilant?


Gross: Fed will never sell what they now own but will stop buying more @ some point. Question is when? Growth dependent. We est. Jan 2014.


Gross: Fed minutes: “Many” participnts concerned abt furthr asset purchases. 85bln/month appears 2 be @ risk later in 2013 if economy improves


Well, to this market participant it is clear to me that there is a wider divergence of opinions (dissent?) amongst the Fed’s members.  Gross is just stating what bond managers have been saying for some time.  The Fed selling what they own now is going to be a problem, they are not likely to be able to pull that off without disrupting the market. So the Fed will probably have to hold the great majority of what they own for some time.  The more likely path is that they simply stop buying more bonds and sell what the bonds they own over time.  So they will likely sell trillions of dollars in bonds over time.  That has longer term negative connotations for bond market values, and favors more risky assets such as stocks.


There is a bond holder (The Fed) who owns TRILLIONS of dollars in bonds that you know they are going to sell at some point in the future.  That is not good for bond values.  DO NOT bet against The Fed. 




John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury


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