Why I’m not a fan of the Fed buying corporate bonds
In March, the U.S. Federal Reserve moved to prevent a coronavirus-induced downturn by promising to set up an entity to buy corporate bonds and ETFs, including junk bonds and junk bond ETFs. My concern is that the Fed has simply created another time bomb that future generations will have to defuse.
It’s worth remembering the idea embodied in the aphorism, ‘Wall Street will sell what Wall Street can sell’. But just because an investment product exists doesn’t mean you should invest in it.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
grant.westcott.7
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Astute and to the point as always, Roger. I wonder if at some future point in time inflation will be used as a debt reduction tool – fast forward to the 1970’s!
Roger Montgomery
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That’s one fat tail risk right there grant.