Finding the Fed’s Impact
Looking into the prospects of 2010 we have to begin understanding exactly how much influence governments and central banks had in 2009. Of the most importance to American investors should be the Federal Reserve, which invested a full $1.5 Trillion in mortgage backed securities and Treasuries.
Going Back to Quantitative Easing
The quantitative easing programs had some of the biggest impacts on the marketplace. In total, the Federal Reserve purchased more than $1.2 trillion of mortgage backed securities and $300 billion in treasuries. The $1.2 trillion in MBS purchases are key here, as it was China and other foreign central banks that began dumping them in mass in late 2007.
An Empty Federal Reserve
With quantitative easing coming to an end, the Federal Reserve has been quite vocal in telling banks to bring rates higher, not as a policy move to actually send rates higher, but rather to influence them into pushing borrowing higher. This way the Federal Reserve is able to change its policy without signaling the whole market by letting the overnight rate rise.
Caught By Surprise
It seems that Wall Street has yet to catch on to what Main Street has already noticed. The Federal Reserve is the last single market participant, and its also the largest. There was quite an interesting discussion on CNBC including two Wall Street fund managers. When the bomb is dropped, that is, that the Fed has displaced nearly 80% of total Treasury issuance, the managers hardly bat an eye: http://www.cnbc.com/id/15840232?video=1380339595&play=1
The exchange is quite interesting. In what would absolutely blow the minds of the ordinary investor, fund managers seem to think that the Fed’s activity is little to study. However, in the coming year the actions or lack thereof of the Federal Reserve are going to play a huge role in the marketplace. The problem is, there’s no telling whether they’re going to let the house of cards fall or decide to continue to manipulate the marketplace.
