Schneider: Fed Going Against Savers
PIMCO's Jerome Schneider was interviewed earlier this week on CNBC's "Santelli Exchange." On the topic of sponsored repo, he said, "Ultimately we have to look at the liquidity in the market. We saw it atrophy back in September. Now they've adjusted the symptoms of the market, which is really additional liquidity, they've added $350 billion of additional liquidity.... But ultimately, you have to look at that liquidity can be transient, and this is a factor that ultimately investors are going to have to focus on over the next year. It can be good, and then it can go away.... Undoubtedly, the structure of the market has to be addressed and the Fed is trying to do this. It's ultimately going to be in the form of a regulation that will happen over the course of the next few years. But more importantly, as you look at what the market is doing today, the Fed's purchases of T-Bills is really going against the saver. It's pushing down yields as they purchase $60 billions of T-Bills every month.... As a result, we have to really think about what that does to savers, in terms of lowering their rates. Obviously funding costs are lower, that helps to create a credit appetite and a risk appetite. Ultimately, the big picture is, optimism prevails in this market place and uncertainty is everywhere. So, while we simply have this optimism in the market, because risk assets are continuing to grow, we have to be a little cautious in terms of the risk taking that we're doing because of the changing liquidity conditions and frankly where we are in the growth cycle.... Coming back to full circle, you have to think about what that means for investors. It's a high conviction market and the only reason you're going to take risk is that you believe in that conviction, otherwise it might just be a time to earn a little bit of carry and be more defensive with a diversified portfolio. And that's exactly how we’re thinking about it."
