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Fed Continues to Twist in the Window
This is the fourth post in our series of blogs on the Eurozone crisis. Again, thanks to Troy Warwick for analyst coverage.
Amidst the worsening euro crisis, investors have expressed worry in the Federal Reserve’s decision to increase their Maturity Extension Program—also known as "Operation Twist."
The FOMC announced yesterday that the new phase of Operation Twist, which is designed to lower interest rates on Treasuries and spur to the economy. The Fed plans on selling $267 billion in shorter-term securities while buying securities with six- to 30-year maturities. This should be completed by the end of 2012.
Is the Fed’s plan better than nothing? Perhaps, but the markets are starting to catch on that kicking the can down the road simply isn’t enough. The markets had been rallying into the announcement yesterday, but fell afterwards (and are still dropping today). This is a similar response to the news a few weeks ago that the ECB was making available $125 billion for Spanish banks. It seems that a sustainable rally will only occur with significant progress toward the long-term issues plaguing the world’s economy.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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