In case you never got the memo, the Federal Reserve's monetary
policies are skewing asset prices everywhere.
You know, $22 billion market caps for profitless publicly traded
companies (see Twitter), $52 million for vintage Ferrari GTO's, and
$142 million contemporary paintings at the auction block. But this
time is different, so we've been told and the world scene
is in much better shape than before.
The Fed's biggest footprint has been on the U.S. Treasury market
(NYSEARCA:TLT), where it voraciously consumes Treasury bonds like a
reality show version of PAC-MAN.
In September, foreign holdings of U.S. Treasury (^TYX) debt rose
1% to a total $5.65 trillion. How does that figure compare to the
Federal Reserve's current Treasury holdings?
In early 2009, the Fed's Treasury holdings held just $474.64
billion. That was right around the time when quantitative easing
(QE) began ramping up. Fast forward to today. The chart above shows
how the Fed's Treasury holdings have more than quadrupled to $2.13
trillion from four years ago. How does that compare to the largest
foreign owners of U.S. debt?
The Fed's current Treasury holdings (^TNX) easily surpass
China's $1.29 trillion and Japan's $1.17 trillion purse,making it
the globe's largest holder of U.S. government debt.
Meanwhile, the 10-year yield is up almost 70% over the past year
despite uninterrupted QE. And if you've been long Treasury
bonds, particularly with durations greater than 10 years, the trend
hasn't been your friend.
Furthermore, higher interest rates are a serious threat to
both rate sensitive sectors (NYSEARCA:VNQ) and the broader economy.
When the cost of servicing debt rising, it puts more pressure
Nevertheless, Janet Yellen - the nominee to lead the Federal
Reserve - said she doesn't see any "bubble-like conditions" in the
stock market (NYSEARCA:SCHB), bond market (NYSEARCA:AGG) or
elsewhere. Given the historical propensity of Fed officals to miss
nuclear bombs hidden in plain sight, Yellen's view is sinisterly
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