Encounter With A (Fed Hating) Mutual Fund Manager

September 23, 2017

Ran into a mutual fund manager on my Twitter feed, as Ms. Yellen's formal closing of the door on QE sparked a good deal of commentary. He had referenced a piece he had written for LinkedIn about QE, complaining bitterly about it's effects.



"According to the International Monetary Fund, the US Federal Reserve, and various other economists, quantitative easing undertaken since the global financial crisis of 2007–08 has mitigated some of the economic problems since the crisis.

“It sounded a bit fishy to us so we decided to take a look at what Central Bankers have achieved by pouring trillions of dollars into the system...


  • 659: number of global rate cuts since Lehman bankruptcy

  • $12.9tn: outstanding amount of bonds currently yielding <0% (= 29% of total)

  • $24.6tn: outstanding amount of global central bank holdings of financial assets

  • -1.1%: the most negative bond yield in the world (3-year Swiss government bond)

  • 107 years: time it takes to double your savings in 1-year US deposit account

  • 1387 years: time it takes to double your savings in 1-year German deposit account

  • 6932 years: time it takes to double your savings in 1-year Japanese deposit account

  • 5.7%: level of investor cash as % AUM (Jul’16 FMS), highest since Nov’01

  • $1.6tn: level of cash at US corporate sector, near record high

  • 1978: the year US labor market participation rate was as low as it is today

  • 21,084,000: current number of unemployed men and women in Europe

  • 49%, 45%, 39%: youth unemployment rate in Greece, Spain & Italy


As my 9 year old son says whenever I wipe out on a surfboard, Epic Fail!"



I belatedly discovered, and it should come as no surprise, that the author is something of a fellow traveler of the “Culture of Complaint” specimen I wrote about some months ago: string together a litany of economic shortfalls, (including the oft-debunked rant about Labor Participation) and scapegoat the Central Banks for ALL of them. As if the tools they had at their disposal could actually do something to alleviate problems that have nothing directly to do with monetary policy, or are simply outside their legally mandated purview. So I responded on my feed:


QE helped break the back of a deflationary death spiral. Allowed $6T+ in mortgage re-fis, spurred record auto sales. Fed haters gonna hate. As far as "hurting savers," a tremendous load of nonsense.  (https://www.flomartin.com/single-post/2015/04/06/The-Fed-is-Just-KILLING-Us-With-These-Low-Interest-Rates

-  3/16/2015)




"Deflationary death spiral" if one does not: have kids in college, eat, use healthcare or own a house."


To which I responded:


The Fed does not control tuition costs, regulate the health insurance industry, or cure male pattern baldness. And homeowners have benefited a LOT.


(This is a common trope with Fed haters. Why do they repeatedly insist on counting something inflationary into the mix that is not the least bit subject to monetary policy? Can the Fed stop Yale from raising tuition? Can it stop United Health Care from hiking premiums? Of course not. But hey, it's “inflation!”)




"US mutual fund & ETFs total Assets Under Management =$18.9 trillion as of 12.31.16 Bond Funds=22%, Money Market Funds=14%, so 36% rate sensitive."


My reply:


Of course, the remaining 64% of AUM tripling since March of 2009 is meaningless in the face of that data, right? You can't have it both ways.


I continued:


It is amazing to me that people think rates should be set to benefit "savers" while snuffing the general economy.


(This is another common oddity with professional Fed haters: Am I to understand that these people are advocating idling factories, hobbling retail sales, restraining employment growth, raising the cost of carrying home equity and auto loans, and slowing the economy down in a deflationary environment, so some people can get slightly higher yields on bank certificates of deposit? Is THIS the policy they advocate?)


He continues:


"Investment in Infrastructure …. would have been more impactful than QE infinity."



Well, you CAN do both, but once again, I reminded:


Again, the Fed does not control this either, and these initiatives were killed by congress. This scapegoating is quite absurd. By the way. Those declining yields? They REALLY, REALLY, benefit bond funds.


"Donald, yes bonds flows reflect current rate environment. The data I gave was to help you better understand retirement investing."


Ahh, feel the condescension. And that's MISTER Davret to you, buster.


In any case, what this man is doing, like so many others, is vilifying the Fed for the fact that monetary policy is incapable of fixing what only fiscal and tax policy can. The Fed does not control spending, or propose infrastructure. Once again, the Fed didn't "hurt savers." In a nation where close to half of the population doesn't even have $1000 in savings to their name, it's hard to make the case low interest rates ever hurt anyone. And the Fed does not facilitate "inequality." Tax policy and the financialization of the economy does. This is perhaps the most empty complaint of all: if asset values are reflated, it stands to reason that those who actually OWN assets will benefit most from the policy. But there is nothing a Central Bank can do in the way of policy that can redress that balance.


The Fed did accomplish, in the face of an organized smear campaign about creating a hyperinflationary holocaust that never materialized, the creation of an economy that progressed in a measured and orderly fashion from the ashes of a financial disaster. Also pointed out in the postmortems over QE was that a good deal of the policy itself was merely psychological: plenty of times, a heightening in tensions over Syria or the South China Sea sent investors into a "flight to safety" mode, and global Treasury buying suppressed rates far lower than any action taken by the Fed. In any case, the damn thing worked.


Oh, and that Fed bashing fund manager? Here is one of the mutual funds this manager's company runs to “help” me better understand retirement investing.


TTM Yield: 1.82%

Load: 5.75%

Expenses: 1.41%



America is a wonderful country, my friends. Where else can you offer a fund with a load that's 3 times higher than your Trailing Twelve Month Yield, and lecture others on "understanding retirement investing?"


I've thought from time to time how much wealthier I could have been offering a sucker bet like this to the investing public. One that pays me more in income than to my own clients. Of course, one needs to lack a conscience to do so.

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FloMartin Securities, Inc.

Donald R. Davret, Investment Advisor Representative




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