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Ruffer: will Fed be pushing on a string or lighting a fuse with QE3?

by Sarah Miloudi on Sep 10, 2012 at 07:21

Ruffer: will Fed be pushing on a string or lighting a fuse with QE3?

The team at the helm of Ruffer Investment Company (RIC) is fearing policy makers' continued reliance on unconventional measures aimed at shoring up global economies.

Following the latest speech by Federal Reserve chair Ben Bernanke at Jackson Hole, respected investment duo Steve Russell and Hamish Baillie said investors have come to expect more stimulus, with markets jolting up in anticipation of every announcement despite the limited effectiveness of schemes like quantitative easing (QE) so far.

'Even now, almost four years after the initial programme, no one is sure how effective it has been let alone what the longer term consequences will be,' Russell and Baillie said.

Speaking to investors in a typically frank RIC update, the team voiced their concerns less than a week after the European Central Bank announced its outright monetary transactions plan, an unlimited bond buying programme to save the euro which sent stocks flying up, and after Bernanke (pictured) hinted at more stimulus for the US in an August address.

However much like in the days and months that ran up to the credit crisis, Russell and Baillie said that no-one knows if the Fed will be 'pushing on a string or lighting a fuse' if it decides to announce a third round of easing.

'Much like the lead up to the credit crisis where the direction of travel could be seen but the lightening conductor of subprime mortgages was difficult to identify, so now it is difficult to know what will tip this fragile balance over the edge.

'I doubt we will have to wait for QE8 to find out,' the pair added.

At the end of August, Russell and Baillie saw RIC's net asset value (NAV) per share remain unchanged while the FTSE All Share Index added 2.2% on a total return basis.

The £286 million vehicle's share price was 200.0p, double its launch price, and its premium stood at 4% at the end of the stretch.

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