Consequently, I've read half a dozen more articles on doom-and-gloom and while most were riddled with mistakes, recent pieces from 'Grant's Interest Rate Observer' laid out a more honest rationale for angst, in addition to common sense that one of the longest bull markets in history is due for a pullback or correction. Of course, the focus has been on the "crash," which has to be monstrous for those experts that spooked folks out of stocks in March 2009, and into gold and bomb shelters.
The term "not going to end well" comes to mind, although it quantifies nothing, thus any major drop would suffice.
For them and many in the media, missing 10,000 points then seeing a 3,000-point correction would equal a 3,000-point correction; they would be right and will cheer their prescient predictions, so spot on that they began making them four years ago.
Before touching on Mr. Grant, whom I have always admired though I have always felt he was a curmudgeon, reading and hearing all the noise is akin to listening ad nauseam to those Budweiser Frogs in those old Super Bowl commercials. However, Grant is a super smart guy, so I read and took notes. The first thing everyone should understand is that the Fed is NOT buying $65.0 billion in stocks each month through its (QE) quantitative easing program. Those funds in fact are going to the federal government via direct purchases of Treasuries and agency mortgage backed securities. In fact, Fannie Mae, Freddie Mac, and Ginnie Mae must guarantee the only MBS the fed can purchase.
Fannie Mae Is Making a Mint?
Have you heard...Fannie Mae paid back more in dividends to Treasury than it took in as bailout money, and while this was happening, the shares of Fannie Mae were up 1,700% this past year? Officially, management points to increases in housing prices, lower defaults, and greater mortgage demand. I have to wonder if selling certain assets to the Fed has helped this most amazing turn of events. With a $7.2 billion payment this month, Fannie Mae would have paid the government $121.1 billion against $116.1 billion in bailout funds.
It really helps when you have the market to yourself, and can sell your junk to what has become a Yucca mountain known as the Fed balance sheet. (Interesting, that's what government sponsored entities once were for the banking industry, facilitating the practice of bundling good stuff and crappy stuff, and spreading these around the world until large chucks landed in their vaults.) Right now, all profits from Fannie Mae and Freddie Mac go to the federal government, which has no plans to end its control of these two cash cows.