Fed May Follow BOJ and Buy Stock in Move Toward Socialism
People are worried there is a real possibility of the US Fed will follow in the Bank of Japan’s lead and begin buying stocks.
“My biggest concern is government ownership of stocks. Stocks are companies, is that not government ownership of companies? That starts to look a lot like socialism,” Charles Sizemore said in an interview Friday.
US Fed Chairwoman Janet Yellen has said that the central bank might be able to help the US economy in a future downturn if it could buy stocks and corporate bonds.
Speaking via video conference with bankers Thursday in Kansas City, Scoolmarm Yellen said the issue was not a pressing one right now and pointed out the Fed is currently barred by law from buying corporate assets.
“I didn’t expect to see the Federal Reserve even talking about the possibility of buying stocks,” said Mr. Sizemore, CIO r of the investment firm Sizemore Capital Management.
“Now, they did make it clear that this is not something they can currently do, they don’t have the power to do it now, but all it would take would be for Congress to change the rules and all of a sudden, that becomes fair game,” he said.
For her part, Ms. Yellen said the Fed’s current toolkit may be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”
“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” Yellen said, adding that buying equities and corporate bonds could have costs and benefits.
Ms. Yellen told a conference last month the Fed would fight a future recession by buying government debt and jawboning interest rates lower with pledges on future policy. But she said other tools might be necessary, including expanding the range of assets it may/would/could purchase.
She cited possibilities like raising the central bank’s 2% inflation target or targeting the nominal level of national economic output.
In that scenario, savvy investors can only benefit by bulking up their War Chests.
Mr. Sizemore urges Americans to be realistic with their expenses, whether that means plugging numbers from financial statements into a spreadsheet or literally sitting at the kitchen table with paper and pencil.
If the numbers literally do not add up, “you have to make changes, if that means getting a smaller house, if that means driving a less glamorous car, that is what you have to do because that’s what the math says. You have to live within your means,” he said.
“It’s something that a lot of Americans have had a really hard time doing over the last 30 years, but in retirement, better late than ever, right? It’s better to get started.”
Have a terrific weekend
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