|
WoW
|
YTD
|
Bitcoin
|
-0.4%
|
+165%
|
Bloomberg Galaxy Crypto Index
|
-4.0%
|
+197%
|
S&P 500
|
-1.0%
|
+8%
|
Gold (XAU)
|
+0.1%
|
+21%
|
Oil (Brent)
|
=0.7%
|
-24%
|
“I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons. First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce? Second, I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk,and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy. My third concern—and others have touched on it as well—is the problems of exiting from a near $4 trillion balance sheet.”
“The annual expected inflation rate over the next decade is 1.89% according to the Federal Reserve Bank of St. Louis. The average IG corporate bond yield is just 1.85% per Bloomberg Barclays data. This has already had & will have a profound effect on risk assets.”
“Income is only a piece of the puzzle. The inimitable charm of government bonds over the last 30 years or so has been their wonderful tendency to give capital gains when the world starts to fall apart. Five times out of six, the 10-Year note did a wonderful job of cushioning the pain of the bear market, and across all six bear markets it averaged a double-digit capital gain. The fly in the ointment is that those capital gains came from an expectation that the Federal Reserve would reduce interest rates to combat any economic weakness. In each of the above events, such a reduction was possible. Today that is probably no longer true.”
And That’s Our Two Satoshis!
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Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services.
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