The Fed's Terminal Dilemma: When to Begin 'the Great Unwind'

[geckosfeet]

Interesting little piece from PBS's John Shayne.

Once you get past the Merle Hazard nonsense there is a March interview with Warren Buffet on the feds "buy up all the shit and save the banks from their own greed and stick it to the taxpayers" program.

The Fed's Terminal Dilemma: When to Begin 'the Great Unwind'

Buffett says in the clip that he thinks it will be "interesting" when the Federal Reserve gets to the unwinding stage of the stimulus it has applied. Prompted by the interviewer, he admits that "interesting" is just a euphemism.

"It's very easy to buy," Buffett says, referring to the trillions of dollars worth of bonds that the Fed has purchased to support the economy since the 2008 crisis.

"Now when you start selling, you know, you, at that point, you start sopping up reserves," he adds. "And that's a much different action than buying." (The reserves are the trillions of dollars that the Fed has printed, or rather, created de novo, to buy bonds since the crisis.)

"All over the world, everybody that manages money is waiting to catch the signal that the Fed will reverse course," Buffett says. "In the end, there are an awful lot of people (wanting) to get out of a lot of assets if they think the Fed is going to tighten a lot... (W)e've never had the degree of disgorgement that might be called for down the line, and who knows how it'll play out. But it'll be noticeable..."

The Fed's Terminal Dilemma: When to Begin 'the Great Unwind'

I agree with Buffet. I am waiting for some type of signal to bail out of my mutual funds. I do not want to wait until the market starts to slide. Fidelity will sandbag the sale requests for 48 hours and I will lose even more. Have to get the sales in well before any announcement. Might lose a little gain but will preserve a lot more capital. It's a safe trade off.

Anyone have any ideas on how to time this sucker?

[Warpy]

1. Individuals aren't buying houses, no matter how low the rate is.

Wall Street investment banks are the ones out there snapping up real estate. My guess is that the next round of unsupported CDO's will be based on the rent they charge for these places.

If you look at the larger economy, it's still in a depression.

A few of the savvier Wall Street types know this and are acting accordingly.

Washington had better learn quickly that lowering inflation on the backs of 99% of the people in this country is not going to work long term and that they're going to have to raise the wage floor, suck up short term high inflation, and then be content with the 2-4% a year inflation that just comes naturally to fiat currency.