Today the man the United States called up on to execute QE1 warned King World News to expect even more chaos to erupt in 2015. He also discussed what this will mean for investors in major markets, including gold. Andrew Huszar, who built the Fed's massive trading room, also spoke about what is currently exacerbating serious problems in Russia and elsewhere around the globe.
Eric King: “Andrew, what were your thoughts on what transpired with the Fed yesterday?”
Huszar: “I think what happened was a relatively insignificant change. I’m reminded of a saying in Hungary: Hungarians say that they are always saying they are going to leave the party but they never do. And I feel like the Fed is becoming pretty Hungarian these days in terms of the way it’s talking about the idea of ending easy money but it isn’t really showing any inclination to do so.”
Eric King: “What are your thoughts on what is happening in Russia? Obviously the are under economic attack, including their currency.”
Huszar: “There are some underlying issues in the Russian economy. But what we are also seeing are some of the unintended consequences of the end of QE in October….
Continue reading the Andrew Huszar interview below…
"To be fair, QE hasn’t really fully ended. The Fed indicated it would keep the current size of its portfolio static. So it’s still going to be undertaking about $1 trillion worth of bond purchases each year. This will just be to replace the bonds that are maturing.
But it’s not buying more, and so I think a lot of the liquidity that was flowing into the world markets and pumping up emerging market stocks and commodities, and even higher risk corporate debt issuance in the United States, has eroded. This is part of the fallout we are already seeing on the margin from the fallout of QE. So the problems in Russia and elsewhere are being exacerbated by the end of QE.”
Eric King: “What does that mean for the rest of the world? We’ve already seen the chaos erupt in Russia. Is it going to spread?”
Huszar: “I think there is even a larger macro-question. A lot of the underlying problems that we’ve seen leading to the financial crisis and in the years subsequent to the financial crisis haven’t been resolved. The question is: At what point do those problems bubble up and cause larger systemic issues?
It's unclear as to when that’s going to happen. We could see this happen in the United States. For example, after QE1 and QE2 we saw the U.S. stock markets fall by more than 20 percent each time. But since the quasi-end of QE3 the U.S. stock markets are still up 10 percent. In so many ways the question is: When will these small fires become much larger issues? The timing is unclear. It could happen right away, in a matter of months, or even longer.”
Eric King: “I always ask you about gold, Andrew, because you own the metal of kings. Where is gold headed in 2015?”
Huszar: “It’s hard to speculate where markets will go in the short term. Gold is a really valuable hedge in one’s portfolio. I think there is an enhanced possibility that we could see greatly increased volatility in global markets. We’ve already seen some of that recently.
If the Fed continues to be committed to easy money, then that volatility may occur more in fits and starts rather than something more dramatic. But in times of global uncertainty, gold has historically been a very savvy investment.”
Eric King: “Any surprises you think are in front of us in 2015?”
Huszar: “I think there is a surprise coming. I don’t believe that this world of artificially suppressed volatility and benign markets on such a large scale can go on indefinitely. We are already seeing surprises at the end of 2014 in terms of Greece, Russia, the oil market, and inevitably we are going to see even more surprises in 2015. The real question is: To what extent are those surprises somewhat isolated? And to what extent do they lead to more systematic fear and volatility in 2015?”
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