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« Should Investors be Scared Witless? | Main | The Quest for Yield Part 8: Solid Income is Still Available »

June 23, 2013

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Proteus

I'll add that I do not believe everything is rosy - my boss's data-driven approach missed a major product fault that wiped out 10 years worth of profits, so there is plenty of room for error.

Proteus

Jeff, very timely post. I don't like the SLFSI going up so fast, but as you say it is not a timing tool.

Damodaran had a good post on how much the Fed controls interest rates http://aswathdamodaran.blogspot.com/2013/06/the-fed-and-interest-rates-lessons-from.html. His conclusion is also the Fed is not as huge a player as many believe.

I think a lot of investors don't understand what "data-driven" means. Since a former manager of mine used that approach, I have a bit of experience: Ignore the noise about the Fed worrying about too much speculation or low interest rates. The unemployment rate is at about 7.5% right now, and has been decreasing at roughly 1% a year. All else staying the same (yes, big assumption), it will hit the magic 6.5% number around next July. So the Fed starts to raise rates in Aug or Sept. If they want 6 months of no additional bond purchases before Sept the last QE buys will be Feb. Halfway from now to Feb is Oct; that will be the point where bond buys are reduced to 50%. People may not like it, and there may be many potential detours, but that is how I see a data-driven Fed operating. So, why is everybody acting so surprised? Bernanke must be fuming - he probably hates the volatility, but I suspect he really wants investors to see what the central tendency in policy is.

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