Central Banks Start to Sell

[airboy]

The Federal Reserve is starting to wind down their $3.5 trillion in private financial holdings.  The Fed and the other central banks went on this massive, never seen buying spree of financial instruments during the recession and then did not liquidate their holdings.  The liquidation process is starting.  My guess (and it is a guess), is that there will be some downward pressure especially on private sector bonds.  But we have never seen this event in the world economy before and thus all the predictions (including mine) are based on guesswork.

This might be a very consequential move by the Central Banks.  Other than Japan, the developed world has never seen this sort of action before.

This is not the sort of important news story that gets much attention, but it might have profound impacts.

[JasonPratt]

In related news, I just put my Roth IRA into CLM, a fund that invests in banks. Down almost $1400 since Tuesday so far, although I'm going to get $770ish of that back (eventually) from the ex-div on Wednesday.

Its dividend per year is pretty great, and pays out monthly, tho (currently a little more than 23 cents per share)!  :bd: I'll probably stay in it a while.

Now I'm wondering if news about the Fed's liquidation of financial holdings is cratering the stock...  :hide:


...which, uh, will make it more cost-effective to buy, I guess! Div reinvestment ho!  :bd:

[Toonces]

Airboy, what does this mean for us investors?

[airboy]

Airboy, what does this mean for us investors?

My ability to predict the future is spotty - although it is better than the average Grog in College Basketball!

Seriously, more of the holdings are in bonds than stocks.  Probably have a depressing effect on bond prices when there is a bunch of supply put into the market.  But I really don't know.  We have never experienced a situation where Central Banks intervened in the financial markets so heavily for so long.

What am I doing personally - nothing.  I buy very inexpensive and broad mutual funds.  Because I will have a pension that acts as a giant bond - I am overweighted in Stocks.  But I have bought and held for 30 years now.  I buy in good and bad markets.  I don't try to time things.  I sleep well at night.