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But right now we want to get reaction from -- rebel chief investment officer of fixing -- TCW joining us now.
From Los Angeles Ted at -- to be here it's see you what kind of knocked the wind out of stocks at least in -- yields higher.
On the ten year was the suggestion by Bernanke that the Fed could change course.
At least in the next several meetings.
Isn't more being made of this than necessary.
Well probably the Fed Chairman didn't really tell us anything new when -- in fact we heard from.
The New York bank president yesterday that the next move with respect to the Fed could be.
To either increase or decrease the pace of quantitative easing steps effectively what the Fed Chairman said this morning but -- I think what it reveals.
Is that the markets have grown overly dependent on expectations that quantitative easing.
Is going to be a fixture of monetary policy for years to come.
And I think what the what Ben Bernanke reminded us all this morning was that the policies may be fine and and not subject to change in the near term.
But I think what he's.
Informing -- the equity market and by the reaction in the bond market the same message was being heard.
Is that don't don't have the belief that that quantitative easing will necessarily continue for years and years and years.
Which I think is actually where -- capital markets have been in terms of their own pricing structure for quite a long period of time.
When we get a more definitive statement from the Federal Reserve about the backing off of the bond buying program how ugly will it be for bonds you think.
Well the Fed casts a really long shadow over the bond market and -- I think this is well understood within the confines of the -- I don't think that they ever spot.
When they launch quantitative easing back in the dark days of late 2008.
That almost five years later we would still be witnessing.
A an ongoing purchase program that as you well know.
Is equivalent to 85 billion dollars -- -- time so I think that essentially.
Where it all leaves us is a -- A realization I think on the part of the fact that to a certain degree there in a bit of a policy box.
The Fed has accumulated literally trillions of dollars worth of assets on the balance sheet.
And it's not really clear -- obvious to them how they're going to exit from at all.
Then therein lies when -- -- You kind of get the typical warning to congress by the -- -- not just Ben Bernanke but Alan Greenspan before him.
About needing to get your financial house in order and not.
Spend beyond your means live beyond your means but that's much bigger meaning today.
Given the fact that the Federal Reserve is essentially giving these lawmakers are free pass with us.
Did you read into that that way.
Well that the Fed Chairman himself I think has written historically extensively on the idea that fiscal policy is the domain of the elected officials.
And that the Fed basically plot the trajectory of monetary policy assuming that fiscal policy is given but what you're saying is quite correct is that.
Quantitative easing and zero rates has effectively reduce.
The cost of the borrowed to the national government from something along the lines of 5% back for five years ago.
To where it is currently which as we all well know is typified by a ten year treasury below 2% and it has probably led.
To a IE and large federal government -- level of spending.
That we wouldn't have seen otherwise had it not been for the abnormally low rate environment that the Fed has actually facilitated.
Ted in just one last thing do you think that individual investors fully understand the risk.
That -- that -- in owning US treasury at this point or even continuing to buy them.
I don't think that the risks are as fully understood as they should be and maybe to put that into context is we should.
First of all first take away.
At ten with ten year treasuries -- 2% that's still probably below the underlying rate of inflation -- an investor.
In treasury securities even if you extend your maturities.
Isn't in the condition of losing purchasing power now get that 2%.
I was -- -- to as little as two and a quarter percent that.
-- negative price movement that would be implied and a ten year treasury would effectively wiped out an entire year's worth of income.
Associated with that security the bond market has become as -- Mentioned a moment ago and I think as we all well know.
Very very dependent on that in the continued expectation.
Had a combination.
And that is the very reason were taken these hearings today -- thank you so much for being -- -- -- a -- rebel TCW.
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