4 ms·

The strategy this spring of just buying up bonds en masse worked pretty well, and seems fairly unlimited as long as they're willing to print money with which to

The strategy this spring of just buying up bonds en masse worked pretty well, and seems fairly unlimited as long as they're willing to print money with which to buy stuff. They have a lot more levers than just interest rates.

bumby 6y ago
What types of bonds are you referring to? Treasury bonds aren’t exactly going gang busters. Or maybe we’re talking about different periods? The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well
- thedufer 6y ago
  Corporate bonds. Look at $BND, for example. It crashed 8.5% March 9-12. The flattening and then quick rebound are generally credited to the rumors and then announcement of the Fed's bond buying program. The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
  - bumby 6y ago
    Fair enough, maybe I was reading too far between the lines that the parent commenter was referencing the market as a proxy for the economy (which I don't agree with, but it's a common assumption). I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
    - thedufer 6y ago
      Interest rates have historically been their biggest tool, but the buyer-of-last-resort things seems both better at propping up the market (probably worse at spurring the actual economy, but again, all we're talking about here are investment returns!) and unlimited in power in a way that interest rates are not. Interest rates are bounded at 0, or at least start behaving oddly beyond that, while just buying stuff is bounded at having all of the stuff, and if the Fed has all the stuff you no longer care what prices the stuff has because you don't have any of it.
      - bumby 6y ago
        While I now understand your first comment was about returns exclusively, where I disagree is that’s protecting returns is not the Feds primary goal. Their mission is to help stabilize prices and employment to cultivate a stable macroeconomic system. So I think their actions are more appropriately viewed throw that broader economic lens than simply assessing whether stock returns are going up

bumby 6y ago

What types of bonds are you referring to? Treasury bonds aren’t exactly going gang busters. Or maybe we’re talking about different periods? The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well

thedufer 6y ago
Corporate bonds. Look at $BND, for example. It crashed 8.5% March 9-12. The flattening and then quick rebound are generally credited to the rumors and then announcement of the Fed's bond buying program. The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
- bumby 6y ago
  Fair enough, maybe I was reading too far between the lines that the parent commenter was referencing the market as a proxy for the economy (which I don't agree with, but it's a common assumption). I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
  - thedufer 6y ago
    Interest rates have historically been their biggest tool, but the buyer-of-last-resort things seems both better at propping up the market (probably worse at spurring the actual economy, but again, all we're talking about here are investment returns!) and unlimited in power in a way that interest rates are not. Interest rates are bounded at 0, or at least start behaving oddly beyond that, while just buying stuff is bounded at having all of the stuff, and if the Fed has all the stuff you no longer care what prices the stuff has because you don't have any of it.
    - bumby 6y ago
      While I now understand your first comment was about returns exclusively, where I disagree is that’s protecting returns is not the Feds primary goal. Their mission is to help stabilize prices and employment to cultivate a stable macroeconomic system. So I think their actions are more appropriately viewed throw that broader economic lens than simply assessing whether stock returns are going up