Gyroscopic Investing

CFAs Concerned About Fed’s Aggressive Approach To Stimulus

https://www.fa-mag.com/news/cfas-concer ... 57640.html

"The CFA Institute’s findings were based on responses from more than 8,000 investment professionals in July. CFAs signaled that they understand that the Covid pandemic put the economy on a ventilator, with about 60% supporting the current record levels of financial stimulus that Congress and the Federal Reserve have delivered.


But less than 44% believe that new stimulus is needed. And 65% do not support the Fed’s proclaiming unlimited stimulus authority. Fed Chairman Jay Powell has said that the U.S. government’s stimulus commitment needs to follow a “whatever-it-takes” approach to prevent economic illiquidity from becoming insolvency.

“Many wonder about the source of that authority and the precedent it sets for fiscal accountability,” the CFA Institute said.

Among the key findings from the survey:

• More than 75% of CFAs believe the level of oversight and reporting of emergency relief efforts by the Treasury, Federal Reserve and the Small Business Administration are insufficient.

• A majority (70%) of CFAs reported they are most concerned about eventual inflation.

• Only 35% of CFAs agree with the Fed’s view that the levels of response must be unlimited in terms of extending monetary and fiscal support.

“CFAs are overwhelmingly concerned about the Federal Reserve’s intervention in corporate credit markets and the risk and [the] proliferation of ‘zombie’ companies and zombie markets,” the report said.

Financial professionals also reported far-reaching concerns about ever-expanding, stimulus-induced deficits. “We asked members what specific concerns they had regarding market integrity and budget deficits that will result from the current stimulus levels and beyond. A large majority of respondents expressed concerns over several potential deleterious effects of deficit-funded Covid support,” the institute said.

Study co-author Kurt Schacht said in a blog post that CFAs worry that free-market capitalism could be irrevocably impacted, and that Congress should be asking “honest questions about what comes next and for how long, and how to ensure honest oversight” and that the relief efforts “must not be allowed to continue in unlimited fashion or in the shadows.”

With some 70% of CFAs reporting that they are most concerned about eventual inflation, most are concerned “the government’s actions will cause serious price discovery disruptions for investors and markets,” the CFA study found.

CFAs also expressed deep concerns about the stimulus program’s oversight and accountability. The most unequivocal finding in the survey was that CFAs want adequate levels of transparency and accountability when it comes to the distribution of record amounts of bailout support.

“Accepting that this is an economic emergency and that public officials deem spending authority as limitless, transparency around the terms and where the stimulus dollars land remains the only check and balance,” the institute said."

I could be completely wrong, but I've thought for at least a decade you would see the national debt being monetized in some form or fashion. I thought the initiator would be social security and medicare as the boomer generation goes through old age which of course has only been a partially right answer.

Given the debt load we are carrying now is fact, really what matters most is how it is handled going forward and it sure looks like the policy option of choice is suppressing interest rates for long periods of time. It probably is the the least bad, but to be clear all options are bad (default, inflate, suppress).

Some businesses are going to be very challenged going forward if rate suppression is the policy choice of preference...banks, life insurance, fixed pensions, annuities...basically anything that relies on interest rate spreads. I'd be very reluctant to purchase an annuity these days and particularly if you have genes that could take you forward for a couple decades +.

I'm going to guess this is why Berkshire Hathaway basically unloaded all their bank stocks which have been in their portfolio for decades.

P.S. This is directly related to our continuing conversation on LTTs. I do think PP holders should account for the fact that these conditions never existed in HB's data set. It in fact is "different this time."

A small aside about the CFA.

I finished level 1 of the CFA program just before embarking on my career change.

I found it incredibly perverse that the CFA is essentially a fundamental analysis course, yet right in the course material they also cover the efficient market hypothesis which essentially says that fundamental analysis doesn't work.

You're spending months and years of your life to earn a designation where literally the course material says that what you're being trained in is a useless endeavour.

That along with the disgusting behaviour I saw on the part of big banks and the way they treat working people, it was time for me to quit that industry.

Smith1776 wrote: ↑Wed Sep 09, 2020 4:33 pm A small aside about the CFA.

I finished level 1 of the CFA program just before embarking on my career change.

I found it incredibly perverse that the CFA is essentially a fundamental analysis course, yet right in the course material they also cover the efficient market hypothesis which essentially says that fundamental analysis doesn't work.

You're spending months and years of your life to earn a designation where literally the course material says that what you're being trained in is a useless endeavour.

That along with the disgusting behaviour I saw on the part of big banks and the way they treat working people, it was time for me to quit that industry.

At least they're honest!