The Fed’s Misguided Policies: Musings

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The Fed’s Misguided Policies: Musings
<a href="https://pixabay.com/users/skeeze/">skeeze</a> / Pixabay

The Fed's Misguided Policies: Musings

With the Fed engaging in financial repression (maybe that should be oppression, the only role of the Fed is to steal from savers…) there are many corporate bonds being issued at low yields, some of which  are at lower yields than losses that we experience during crises for the ratings class.  Should this not be a warning sign?  Yes, it should.

The Fed is creating another bubble.  Note the failure of the last bubble they engineered — the housing mortgage bubble.  They are smart, oh so smart, but with little true knowledge of how the world works.  We would be better of without the Fed.  Please unemploy a bunch of Ph.D. economists who can create very clever models of the economy that bear no resemblance to the real economy.  Please eliminate a bunch of pseudo-intellectuals who think they can control the economy.

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Please eliminate a bunch of sorcerers apprentices who think they understand how to stimulate the world, and replace them with a bunch of humble people who know that they do not know, and maybe, a few that know that they can’t really stimulate, so give up.

The low interest rates that the Fed supports for high quality bonds indirectly attempts to overleverage the corporate sector in the same way that they overlevered the consumers through housing 2003-2007.

We would be a lot better off without as much government interference.  We grew much faster when the government did not try to control the economy as a whole.  Please point to successes in government macroeconomic management.  You will find none.

Interest rates are too low now, and are building up a new bubble in corporate debt.  Don’t worry in the short run, the corporate sector is strong.  But what if this continues for a while?  The one remaining sector of strength will be compromised.

Our policies in the US stink… it is only a matter of time before they hurt us badly, whether through higher taxes, inflation, or default.

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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