Is the great expansion soon to become the great unwinding? The recent unanimous decision by Federal Reserve officials to start reducing the size of its bond holdings would indicate it.
The Fed’s balance sheet is up an estimated 500% to $4.5 trillion since the financial crisis because of its massive purchases of treasury bonds and mortgage-backed securities, designed to lower interest rates and thus borrowing costs for businesses, homeowners and consumers alike.
According to The Wall Street Journal, the estimated unwinding of those purchases is expected to be very gradual, initially allowing only $10 billion dollars a month of the bonds to mature without replacing them – a pace to be accelerated later.
The Fed is the first among the major central banks of developed countries to start withdrawing from this unprecedented monetary experiment. The European Central Bank and the Bank of Japan continue to buy bonds to keep their interest rates low in an effort to encourage economic growth.
This week’s guest, Scott Minerd, is a successful fixed income manager who is tracking these developments with interest and concern. Minerd is Co-Founder & Chief Investment Officer of Guggenheim Partners and Chairman of Guggenheim Investments where he oversees $290 billion dollars of assets, two-thirds of which are in fixed income securities. Included in that mix are six taxable bond funds. Each has Morningstar’s top 5-star rating. He is a portfolio manager on all but one. All carry the Guggenheim name. They are the flagship, Total Return, Macro Opportunities, Floating Rate Strategies, Limited Duration, High Yield and Investment Grade Bond.
In a recent report on the outlook for fixed income Minerd told clients “We have to remind ourselves that we are living in a highly unusual time.” He will discuss what is so unusual about the current state of the fixed income markets and why he is adopting a more defensive strategy as a result.
As always, Minerd will share his “One Investment” recommendation for a long-term diversified portfolio. In my Action Point I’ll discuss the importance of owning a safe haven investment.
If you are unable to join us for the show on television, you can watch it on our website, WealthTrack.com, starting over the weekend. If you’d like to see it earlier, it is available to our PREMIUM subscribers right now.
Thank you for watching. Have a great weekend and make the week ahead a profitable and a productive one.