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11/16/2010 The convenience of profit taking that quantitative easings have provided to the big bond fund players

What is(are) the true reason(s) behind Fed’s compulsive oppressive urge to do quantitative easings now?

a) The Fed wanted to lower interest rates further with no specific objectives hoping magically it will not trigger inflation and back fire on our economy
b) The Fed had a target objective. They were trying to create jobs for us hoping magically the money will somehow trickle down to the local communities but it is not their job to figure out how or whether it would indeed happen
c) The Fed tried to bail out their crony financial institutions again so that these banks could get rid off the dud securities in their portfolios and get additional cash injection
d) The Fed wanted to create market liquidity so that their bond fund buddies could sell the bonds to the Fed at historical high prices to take profits for themselves
e) All of the above
f) None of the above

Wait. Let me rephrase the answer choices again.

a) The Fed’s stupidity
b) Naivete
c) The Fed is being naughty again
d) Plain evil

I am usually the last person to believe a conspiracy theory. While I was dumbfounded by the need of a QE2 like many others, it suddenly hit me that how nice it would be if I were one of those well connected inner circle financiers running a major bond fund that currently owns a sizable portfolio of the US dollar denominated fixed income securities.

If I want to get out of my big bond positions whom can I sell it to smoothly without triggering a big market sell-off when everybody tries get out of the door at the same time?

Santa Claus seems to have arrived early this year.

As everyone already knows by now that the interest rate could not get any lower than it is now. Quantitative easings may just provide the excellent opportunities for the funds to get out of their major bond positions before the rates run up and the bond prices head lower. The liquidity that quantitative easings have created and will continue to create allows these bond fund managers to dump those dud hot potatoes to tax payers in bulk at the highest possible prices before they are doomed to collapse in the near future when either the Fed reverses its course or when the inevitable inflation starts to rear its head. Even if you are not in the inner circles of the Fed, you may want to get out of your bond positions while you still can.

Isn’t it convenient for those bond fund players who have special access to the Fed window? Conspiracy or not, one thing for sure is that we the taxpayers ended up buying all the bonds at the historically highest prices from these Wall Street fat cats. They’d be thumbing their nose at us and laughing all the way to banks again.

Shouldn’t we all find out who the bond sellers to the Fed are in these quantitative easings maneuvers? I think somebody may want to tell Ron Paul about this.

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