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There’s no shortage of descriptions out there for central-bank policies — past favorites have included allusions to mad scientists and heroin treatment programs.
But Scott Minerd, global chief investment officer at Guggenheim Partners, may take the prize for the most gutsy portrayal of monetary-easing policies. In a note released on Wednesday afternoon, Minerd says the central bank has effectively turned the U.S. Treasurys market into a “Ponzi market’.
A Ponzi scheme involves the fraudulent act of repaying one investor’s money with the principal of another, thereby over-inflating the value of assets until the bubble finally pops. (If you need a refresher, we suggest you check out MarketWatch’s recent interview with infamous Ponzi schemer Bernie Madoff.)
The crux of Minerd’s argument is that the Federal Reserve’s bond-purchase program, known as quantitative easing, has introduced false confidence into the market because investors believe Treasury investments will continue to increase in price. Just like a Ponzi scheme, the value of Treasury assets has become disconnected from its underlying value. Here’s what he wrote:read more ...