Pension Partners' Gayed: Fed Won't Taper QE Amid Muddled Growth

Friday, 24 May 2013 09:45 AM

By Glenn J. Kalinoski and David Nelson

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Michael Gayed, chief strategist for investment adviser Pension Partners, said there are positive aspects regarding the possibility of the Federal Reserve tapering its program of quantitative easing (QE). But he wonders how the central bank can begin pulling back its strategy amid muddled economic growth.

"Economic growth is still very much in the muddle-through and I think … given that economic data is not accelerating, how can they pull back?" he said in an exclusive Newsmax TV interview.

"They are putting the first balloon out there to see if anybody is going to pop it, but, more importantly than that, we are in this environment of global currency wars. Everybody is printing money. If the Fed steps back, the dollar is going to rise even more."

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But if and when the Fed does begin to taper, "it will allow for more proper price discovery," Gayed said.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

"There has been quite a few distortions that have been in place because of the Federal Reserve trying to jump-start the economy. The Fed … is very cautious here that their QE may be causing an irrational move in the stock market, but not a [similar] move in the economy."

The Standard & Poor's 500 Index has skyrocketed 147 percent from its 12-year low in 2009, according to Bloomberg News. Fed policymakers said following their last meeting they will continue purchasing $85 billion of bonds every month, and are prepared to increase or cut purchases as conditions change.

Gayed also discussed "talk" about a great rotation out of bonds into stocks.

"The rotation actually has been out of commodities and into bonds," he said.

"Commodities, raw materials, tend to be a source of what is called 'cost push inflation,' meaning that as those prices rise at some point the producers of goods that use raw materials pass down that cost to consumers. That’s [the] inflation rate."

The Standard & Poor’s GSCI gauge of 24 commodities fell 2.5 percent since the beginning of January, according to Bloomberg.

"Understanding the relationship of how input costs and the price of those input costs affects inflation, affects bonds and, in turn, affects other things like currencies and stocks," he said.

"It’s something which you don’t really just understand by looking at a chart. You have to understand what is the connection across those asset classes."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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