In the past, the public rarely heard from the chairman of the Federal Reserve, except during interest rate announcements. Now, Ben Bernanke has been thrust into the limelight after initiating a bond-buying program in November commonly referred to as QE2, which has come under attack from both Democrats and Republicans. Last weekend, Bernanke gave an interview on CBS's 60 Minutes to defend the merits of the plan, but a new Bloomberg poll seems to show that he hasn't been too convincing. According to the poll, more than half of Americans want the Fed's powers curbed, or the entire organization abolished. Asked if the central bank should be more accountable to Congress, left independent, or abolished entirely, 39 percent of respondents said it should be held more accountable and 16 percent said it should be abolished. Only 37 percent favor the status quo, according to Bloomberg.
Lyle Gramley, a former Fed governor who is now senior adviser at Potomac Research Group in Washington, told Bloomberg: "The Fed had to do extraordinary things to keep us from going into a great depression, and the public doesn't see it this way. The last time we had any really severe criticism of the Fed was in the early 1980s, when the Fed was pursuing this brutally tight policy to keep inflation under control."
The goal of QE2 was to push yields lower, but a funny thing has happened since its launch. Bond yields have actually risen. (The 10-year treasury yielded 3.2 percent as of Thursday.) Experts point to a number of reasons, including news that the Bush-era tax cuts could be extended, which has sparked concerns about the deficit in the United States. This leaves investors in a precarious position. Since the financial panic in 2008, they've been shunning the stock market, but now the bond market seems to be floundering. Reuters reports: "If you look at bonds or stocks, they're not compelling asset classes no matter what your risk appetite," said Jason Huntley, chief investment officer at money manager Mars Hill Partners in Colorado Springs, Colo. "That does create a dilemma."
Could 2011 be the year investors begin to embrace stocks again? From the beginning of the year through late November, investors have poured a net $268.4 billion into bond funds while pulling a net $30.9 billion from stock funds, according to the Investment Company Institute. Martin Sass, founder of asset management firm MD Sass, said at the Reuters 2011 Investment Outlook Summit in New York on Tuesday that U.S. equities are the "cheapest major asset class out there," and that 2011 will mark the end of the bull market in bonds.
Investors aren't used to losing money in bonds, but that's exactly what happened to many fixed-income investors last month. The Barclays Capital U.S. Aggregate Bond Index lost 0.57 percent in November, according to Morningstar. The world's largest bond fund, PIMCO Total Return, saw its first month of outflows in two years in November, according to preliminary fund flow numbers from Morningstar. PIMCO Total Return lost 1.5 percent in November alone, its worst month since September 2008. Other funds in the intermediate-term bond category, which has had the largest inflows this year with more than $74 billion, had $154 million in outflows in November, according to Morningstar. The category also hadn't seen outflows in two years.
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