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« November Employment Report Preview | Main | Cliff Notes, Fiscal Style -- 12/12/12 »

December 08, 2012

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ocea

My crazy prediction is the Fed will announce they will start buying high yield and corporate bonds to the lower lending costs to companies and in hopes that higher profits will spur on business hiring.

The is why market is front running with JNK and LQD near all time highs diverging from the SPX.
/just for fun

oldprof

Fred -- I suggest three things for you to consider:

1) Our purpose here is to understand and predict the Fed so that we can do better with our investments. We can talk about what the policy should be, but that is not our real mission.

2) In every public policy decision there are winners and losers. Were the Fed to take a different policy course, those who were without jobs as a result could make the same complaint.

3) Bondholders have enjoyed a long period of prosperity, perhaps leading some of them to expect too much.

And finally, there is not much to be done about the Fed, which is very insulated from political pressure. Usually this is wise. The Supreme Court is even more insulated, and often generates decisions that you and I might not like.

If we elect Presidents who appoint people aligned with our viewpoints, we will eventually see progress. I'm not sure that electing Romney would have helped with the Fed, however. I can't remember a President who rejected the idea of easy money!

Thanks for the provocative question, and for letting me expand on this theme.

Jeff

Paul Nunes

People have to put up with it as in reality there is nothing they can do; especially if they use US Dollars for goods and services. I think a lot of time is spent worrying about it rather than trying to focus on what assets they may own that might benefit from Fed policy. If the savers are tired of putting up with it where can they go? In the past there have been periods of inflation in the US and both long and short term rates did not provide real returns. The best example I can remember was in the period leading up to WW2 through 1954 or so; CPI urban was 4.5% and rates both long and short in govt securities were below 2.5% (all from memory). I have a pristine balance sheet but to buy a commercial property (6 plex) with 60% equity on a 10 year note was 6%. Capital is being rationed and hence higher rates than we see; If savers made the effort for direct investment the returns would be higher; but at the obvious cost of liquidity.

FredB

"The effect on individual savers is a side effect, not a goal;"

A lot of people are being negatively side effected. Why should they put up with this?

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