Quantitative Easing On Demand

Feb. 13, 2019 9:45 AM ETTBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, DLBS, PLW, DTYS, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, SPTI, GSY, TYD, DTYL, EGF, VUSTX, TYBS, DTUS, TUZ, DTUL, DFVL, TAPR, DFVS, TYNS, RISE, FIBR, GBIL, HYDD, UDN, USDU, UUP, RINF23 Comments
Mark J. Grant profile picture
Mark J. Grant
6.37K Followers

Summary

  • San Francisco Fed President Mary Daly recently said that the U.S. central bankers are currently debating whether it should confine its controversial tool of bond buying to purely emergency situations or if it should turn to that tool more regularly.
  • This idea will have a profound influence on both the bond and equity markets.
  • We are not talking about some academic notion here but a fundamental change in what asset class will become more valuable, and what asset classes will diminish in value.

Some things are worth repeating so that their potential effects may be fully appreciated. San Francisco Fed President Mary Daly recently said that the U.S. central bankers are currently debating whether it should confine its controversial tool of bond buying to purely emergency situations or if it should turn to that tool more regularly.

She said,

In the financial crisis, in the aftermath of that when we were trying to help the economy, we engaged in these quantitative easing policies, and an important question is, should those always be in the tool kit, should you always have those at your ready, or should you think about those are only tools you use when you really hit the zero lower bound and you have no other things you can do.

Then she stated the almost unthinkable, from a few months ago,

You could imagine executing policy with your interest rate as your primary tool and the balance sheet as a secondary tool, but one that you would use more readily. That's not decided yet, but it's part of what we are discussing now.

This idea will have a profound influence on both the bond and equity markets, if instituted. It first means that the Fed will always be "IN!" Meaning that the Fed is going to determine, on a constant and ongoing basis, whether Quantitative Easing should be used, for any of a number of reasons. It also means that they Fed will always be in control, because you can't fight the people that make the currency. You have no chance, zero, of going against them because you do not have the same power that they do, which is to print money.

If the Fed does decide to pursue this strategy it will be a wholesale change in the way the

This article was written by

Mark J. Grant profile picture
6.37K Followers
Mark J. Grant is the Chief Global Strategist at Colliers Securities, LLC. The highlights of a 48-year career in the financial services industry include positions as President of an investment bank, head of Capital Markets for four investment banks, and serving on the Board of Directors of four investment banks. He has been designated as a Bloomberg Prophet, one of only 15 globally. Mark is one of the longest serving guests on CNBC’s “Squawk Box”, is frequently interviewed on Fox Business and Bloomberg TV, and is regularly quoted in the Wall Street Journal, Barron’s, MarketWatch and other business publications. His commentary, “Out of the Box,” is subscribed to by over 5,000 money managers and financial institutions in more than 46 countries. He is also the author of a book titled “Out of the Box and onto Wall Street.” While Mark’s institutional clients include some of the largest money managers in the world, he also works with high-net worth individual investors. His unique investment strategy is especially useful for people who need yield and monthly cash flows. He employs carefully chosen closed-end funds and exchange traded funds and notes to produce monthly income for his clients, currently he is able to provide yields are 10%+, however current performance is no guarantee of future results. For additional information, email Mark at Markjgrant@Bloomberg.net.

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