Pimco’s Bill Gross has out his latest missive, and if recent history is any evidence then it has a solid chance of being causal, as opposed to being merely predictive. The key part is this:
A systemic delevering likely requires a systemic solution, which moves beyond cyclical interest rate cuts, liquidity provisions, or even the purchase of subprime mortgage-backed bonds. We believe that the Federal Reserve must now act as a clearing house, guaranteeing that institutional transactions clear (and investors receive) their Big Macs at the second window. They must also take another bold step: outright purchases of commercial paper. They should also cut interest rates to 1%, because we are experiencing asset deflation, and the threat of headline inflation is long past. [Emphase mine]
I’m just spitting in the wind here, but given the continued logjam in credit markets, and given Gross’s causal skills of late, I’m willing to bet the Fed starts buying commercial paper — like maybe this week.
[Update] And like clockwork, not ten minutes later, the WSJ runs this breaking news headline:
U.S. officials are examining ways to ease deepening strains in the commercial paper market, which have been hit by an unwillingness among money market investors to hold risky assets.
Not that I’m necessarily objecting to doing something about the CP problems, but does the Fed have to leap to action so quickly every time Pimco’s Gross writes a column?