As part of the Federal Reserve’s stimulus program, it has purchased record numbers of mortgage-backed securities and treasuries. What will happen to the economy when the Fed decides to liquidate some of its holdings? Our first article this week analyses Fed Chairman Ben Bernanke’s comments about a potential stimulus exit. We next turn to Howard Marks’ reasons for investing in high yield bonds. Holders of these bonds may be wondering if they are in a bubble due to last year’s strong performance and today’s historically low yields. We close with an footnote for those concerned about the Fed’s stimulus exit strategy and how it might affect their investments. Jeffrey Gundlach of Doubleline explains why he believes the Fed’s exit strategy is irrelevant to today’s investment horizon.
Bernanke Provokes Mystery Over Fed Stimulus Exit- When Ben S. Bernanke asserted last month that the Federal Reserve doesn’t ever have to sell assets, he raised questions about how the central bank can withdraw its record monetary stimulus without stoking inflation. This article in Bloomberg addresses this issue. http://www.bloomberg.com/news/2013-03-11/bernanke-provokes-mystery-over-fed-stimulus-exit.html
Howard Marks’ Reasons For Investing In High Yield Bonds– Howard Marks is the founder of Oaktree Capital Management and has many years experience investing in bonds. In this article he addresses the question of whether or not high yield bonds are in a bubble. http://www.oaktreecapital.com/MemoTree/High%20Yield%20Bonds%20Today%20Revision%201.pdf
Jeffrey Gundlach Believes Fed Quantitative Easing Is Permanent– If you’re trying to assess the Federal Reserve’s so-called exit strategy from quantitative easing, then you’re asking the wrong question, according to Doubleline’s Jeffrey Gundlach. Quantitative easing is a permanent policy tool, he said, and investors should be asking what that means for their investment strategy. http://advisorperspectives.com/newsletters13/Gundlach-Investors_are_asking_the_Wrong_Question.php
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John R. Day, Bill Ennis and Stephanie Davidson