CNBC Fed Survey - July 30, 2013

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CNBC Fed Survey July 30, 2013Page 1 of 33

FED SURVEYJuly 30, 2013

These survey results represent the opinions 50 of the nations top money managers, investment

strategists, and professional economists.

They responded to CNBCs invitation to participate in our online survey. Their responses were collecte

on July 25-26, 2013. Participants were not required to answer every question.

Results are also shown for identical questions in earlier surveys.

This is not intended to be a scientific poll and its results should not be extrapolated beyond those who

did accept our invitation.

1.For all of 2013 and for all of 2014 (and only in 2014), what isthe total amount of additional asset purchases the Federal

Reserve will have made?

$858.8$917.0 $936.6 $883.6

$921.9

$370.6 $367.1 $373.5

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1/29/2013 3/19/2013 4/30/2013 6/18/2013 7/30/2013

Billions

2013 2014


2/33



3.In what month do you expect the Fed to begin tapering itspurchases?

0%

10%

20%

30%

40%

50%

60%

June 18 July 30

Averages

Jan. 29: Dec 2013

March 19: Jan 2014

April 30: Feb 2014

June 18: Dec 2013

July 30: November 2013

48% selected September 2013 and60% said tapering would begin in

September or October 2013


3/33



4.By how much do you believe the Fed will reduce its assetpurchases in that first month?

$22.1

$19.2

$0

$5

$10

$15

$20

$25

$30

$35

$40

July 5 July 30

Billions


4/33



5.When do you expect the Federal Reserve will completely stoppurchasing assets?

0%

5%

10%

15%

20%

25%

30%

June 18 July 30

Averages

Jan 29: Nov 2013

Mar 19: May 2014

Apr 30: July 2014Jun 18: July 2014

July 30: August 2014


5/33



6.Based on your expectations for tapering, what percentage ofthe ultimate impact on each market is already discounted inthe overall prices of that market?

66%

58%

68%

52%

54%

56%

58%

60%

62%

64%

66%

68%

70%

Treasuries Equities Mortgages


6/33



7.What is the highest unemployment rate at which you believethe Fed will taper/halt its asset purchases?

7.32%

6.71%

6.0%

6.1%

6.2%

6.3%

6.4%

6.5%

6.6%

6.7%

6.8%

6.9%

7.0%

7.1%

7.2%

7.3%

7.4%

7.5%

7.6%

7.7%

7.8%

7.9%

8.0%

Taper Halt


7/33



8.When it comes to how you think the Fed may taper the currenamount of QE, do you believe it will:

10%7%

80%

3%

16%

4%

74%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Reduce Treasuriesonly Reduce mortgage-backed securities

only

Reduce bothmortgage -backed

securities andTreasuries

Don't know/unsure

June 18 July 30


8/33



9.Who will/should President Obama nominate as the next Fedchairman?

Note: Steve Liesman received one vote (2%) in should category.

2%

2%

20%

72%

4%

10%

2%

6%

2%

8%

2%

6%

10%

2%

44%

4%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Ben BERNANKE

Martin FELDSTEIN

Roger FURGUSON

Don KOHN

Glenn HUBBARD

Christine ROMER

Larry SUMMERS

John TAYLOR

Paul VOLCKER

Janet YELLEN

Don'tknow/unsure

Will Should


9/33



10.Compared to Ben Bernanke, the next Fed chairman will be:

2%

26%

52%

14%

2%

4%

0%

10%

20%

30%

40%

50%

60%

Much moredovish

Somewhatmore dovish

No different Somewhatmore

hawkish

Much morehawkish

Don'tknow/unsure


10/33



11.How essential are the following qualities for the next Fedchairman? (On a scale of 1 to 5, where a higher number meanmore essential)

4.52

4.30

4.22

4.18

4.08

4.04

3.41

3.39

3.27

2.94

0.00 1.00 2.00 3.00 4.00 5.

Monetary policy expertise

Ability to manage a financial crisis

Good communication skills

Respect from financial markets

Concern about inflation

Financial market expertise

Respect from international financialleaders

Concern about unemployment

Good political skills

Banking regulatory expertise


11/33



12.Please rate the following three candidates for the Fedchairmans job on those qualities. (On a scale of 1 to 5, whera higher number means a higher rating.)

3.41

3.29

3.00

3.16

3.30

3.51

3.63

3.83

2.73

3.00

4.40

3.30

3.39

3.32

3.14

3.23

3.61

4.53

3.16

3.18

4.62

4.51

3.67

4.16

3.73

3.78

4.38

4.27

3.51

3.56

2.00 2.50 3.00 3.50 4.00 4.50 5.0

Monetary policy expertise (4.52)

Ability to manage a financial crisis (4.30)

Good communication skills (4.22)

Respect from financial markets (4.18)

Concern about inflation (4.08)

Financial market expertise (4.04)

Respect from international financial leaders (3.41)

Concern about unemployment (3.39)

Good political skills (3.27)

Banking regulatory expertise (2.94)

Summers Yellen Bernanke


12/33



Sum of candidate ratings weighted by essentialness of each quality. (Question 12 rating

multiplied by question 11 essentialness ranking.)

0

20

40

60

80

100

120

140

160

180

Summers Yellen juh

Banking regulatory expertise (2.94)

Good political skills (3.27)

Concern about unemployment (3.39)

Respect from international financial

leaders (3.41)

Financial market expertise (4.04)

Concern about inflation (4.08)

Respect from financial markets (4.18)

Good communication skills (4.22)

Ability to manage a financial crisis

(4.30)

Monetary policy expertise (4.52)


13/33



13.Since September 2012, market functioning in the governmenbond market has:

0%

19%

60%

15%

2%

4%

0%

11%

65%

15%

2%

7%

2%

12%

47%

29%

2%

8%

8%

17%

46%

25%

2%

2%

0% 10% 20% 30% 40% 50% 60% 70%

Improved a lot

Improved somewhat

Stayed the same

Worsened somewhat

Worsened a lot

Don't know/unsure

March 19 April 30 June 18 July 30


14/33



Since September 2012, market liquidity in the government

bond market has:

0%

29%

48%

15%

4%

4%

4%

17%

52%

17%

2%

7%

5%

21%

41%

19%

5%

9%

6%

30%

28%

20%

8%

8%

0% 10% 20% 30% 40% 50% 60%

Improved a lot

Improved somewhat

Stayed the same

Worsened somewhat

Worsened a lot

Don't know/unsure



15/33



14.Since September 2012, market functioning in the mortgage-backed security market market has:

4%

31%

29%

20%

2%

14%

2%

22%

39%

20%

4%

13%

5%

21%

21%

32%

5%

16%

4%

31%

31%

20%

6%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Improved a lot

Improved somewhat

Stayed the same

Worsened somewhat

Worsened a lot

Don't know/unsure



16/33



Since September 2012, market liquidity in the mortgage-

backed security market market has:

4%

21%

40%

19%

0%

15%

2%

28%

28%

22%

7%

13%

7%

25%

18%

30%

5%

16%

6%

30%

28%

20%

8%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Improved a lot

Improved somewhat

Stayed the same

Worsened somewhat

Worsened a lot

Don't know/unsure



17/33



15.Compared with the debate at the beginning of the year, thenext round of discussions to raise the debt ceiling will be:

19%

44%

35%

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

More contentious About the same Less contentious Don't know/unsure


18/33



What is the probability that the United States fails to raise the

debt ceiling in the coming months and defaults on at least someof its payments?

54%

28%

16%

2%

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage

ofrespondents

Default probability

Average:6.6%


19/33



16.When it comes to the budget deficit, the United States:

80%

67%

52%

40% 40%

16%

25%

39%

44%

52%

4% 4%9%

12%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

January 29 March 19 April 30 June 18 July 30

Should urgently enact a plan that puts it on a path toward a sustainablebudget deficit

Has at least a couple of years before it must enact such a plan

Does not need to enact a plan that puts it on a path toward a sustainablbudget deficit

Don't know/unsure


20/33



17.Where do you expect the S&P 500 stock index will be on ?

1547

1589

1612

1655

1691

1723

1751

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

Jan 29 2013 March 19 April 30 June 18 July 30

Survey Dates

December 31, 2013 June 30, 2014


21/33



18.What do you expect the yield on the 10-year Treasury notewill be on ?

2.31% 2.35%

2.10%

2.41%

2.73%2.80%

3.10%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Jan 29 2013 March 19 April 30 June 18 July 30

Survey Dates

December 31, 2013 June 30, 2014


22/33



19.What is your forecast for the year-over-year percentagechange in real U.S. GDP for ?

+2.6%

+2.7%

+2.6%

+2.3%+2.2%

+1.9%

+2.1%+2.1%

+2.1%+2.1%

+1.9%

+2.6%+2.6%+2.6%

+2.6%+2.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Survey Dates

2013 2014


23/33



20.When do you think the FOMC will first increase the fed fundsrate?

Increase fed funds rate

(Average response)

Survey Date

Dec

11,

2012

Jan

29,

2013

Mar

19,

2013

Apr

30,

2013

Jun

18,

2013

Jul

30,

2013

2013 Q2

Q3

Q4

2014 Q1

Q2

Q3

Q4

2015 Q12015

Q12015

Q12015

Q1

Q22015

Q22015

Q2

Q32015

Q3

Q4

2016 Q1

Q2

Q3

Q4

2017 or later


24/33



Currently, Fed policy is not to raise interest rates until the

unemployment rate is at least 6.5%. Will the Fed change thatguidance?

30%

60%

10%

0%

10%

20%

30%

40%

50%

60%

70%

Yes No Don't know/unsure


25/33



If the Fed does change its guidance, what will be the new

threshold?

0% 0% 0%2%

32%

0%

11%

0% 0%

52%

2%

0%

10%

20%

30%

40%

50%

60%

Thresholds

Average for those answering with a number:6.23%


26/33



24.Where do you expect the fed funds target rate will be on ?

0.33%

0.27%

0.21%0.17%

0.19% 0.19%0.16% 0.15%

0.20%0.18%

0.97%

0.28%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

Jul 31 Sep 12 Dec 11 Jan 292013

Mar 19 Apr 30 Jun 18 Jul 30

Survey Dates

Dec 31, 2013 June 30, 2014 Dec 31, 2014 Dec 31, 2015

Forecast for

Dec 31, 2015

Forecast for

Dec 31, 2014


27/33



25.In the next 12 months, what percent probability do you placeon the U.S. entering recession? (0%=No chance of recession,100%=Certainty of recession)

34.0%

36.1%

25.5%

20.3%

19.1%

20.6%

25.9%

26.0%

28.5%

20.4%

17.6%

18.2%

15.2%

16.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Aug

11,

2011

Sep

19

Oct

31

Jan

23,

2012

Mar

16

Apr

24

Jul

31

Sep

12

Dec

11

Jan

29,

2013

Mar

19

Apr

30

Jun

18

Jul

30

Survey Dates


28/33



26.What is the single biggest threat facing the U.S. economicrecovery?

Other responses: D.C. nonsense EM growth recession Hostilities with Iran Inadequate monetary stimulus Emerging world economic growth slows

too much

Weak wage growth Manufactured fiscal crises

20%

31%

20%

2%

0%

2%

2%

2%

9%

11%

0%

15%

28%

20%

2%

3%

3%

0%

2%

13%

13%

0%

8%

30%

22%

4%

0%

2%

2%

0%

4%

10%

14%

4%

0% 5% 10% 15% 20% 25% 30% 3

European recession/financial crisis

Tax/regulatory policies

Slow job growth

High gasoline prices

Overall inflation

Deflation

Debt ceiling

Too little budget deficit reduction

Too much budget deficit reduction

Rise in interest rates

Other

Don't know/unsure

April 30 Jun 18 Jul 30


29/33


FED SURVEY27.What is your primary area of interest?

Comments:

Lou Brien, DRW Trading Group: It is important to differentiate between Fedcommunication regarding thresholds to raising the funds rate and theirdesire/intention to taper QE. Succeeding on ending QE sometime in 2014, andthe timing of the first rate hike are in certain ways unrelated to one another.The future path of inflation is a crucial element to any action of the funds rate,but is something that can be, barring a near term collapse in pricing power, setaside in the tapering discussion.

Tony Crescenzi, PIMCO: The tale of the taper terror is tame: forthcomingreductions in the Fed's bond buying will be offset by reductions in issuance ofmortgage-backed securities and Treasury securities. For example, the Fed untilrecently was absorbing about 45% of mortgage originations. Today, because of

the recent rise in mortgage rates, mortgage refinancing activity will fall sharply,perhaps by 40%. This will increase the Fed's absorption rate to 65% such that ifthe Fed reduces its MBS purchases by $10 billion per month, the absorption ratewould still be higher than it has been, moving to 55%. The shrinking budgetdeficit will, for the first time in three years, result in a decrease in the Treasury'sissuance of coupon securities -- perfect timing to temper the taper terror.

Economics44%

Equities22%

Fixed Income

16%

Currencies0%

Other18%


30/33


FED SURVEYJohn Donaldson, Haverford Trust Co.: Regarding the next Fed chair, I amreminded of the old Damon Runyon quote: "The race may not always be to the

swift nor battle to the strong, but that is the way to bet." Bet on Yellen.

Mike Dueker, Russell Investments: So far, there has been little to suggestthat the Fed would not have been better off with the old calendar guidance forQE, whereby the purchases simply end after, say, 12 months. The conditionalguidance has created confusion and given the impression that everything needsto be perfect in the economy in order to stop the asset purchases. Now at leastthe Fed has communicated that the timetable for the first rate hike is still thesecond half of 2015.

Kevin Giddis, Raymond James/Morgan Keegan: We are likely entering the

touchy, feely stage of where the economy is either about to see a breakout inreal growth, or initiate the great head fake of 2013. Rates are poised to movehigher, but it requires more jobs to do so.

Hugh Johnson, Hugh Johnson Advisors: The unemployment rate is unlikelyto be at 7.0% in Q3 or Q4 which, along with recent strength in the dollar, couldpressure the Fed to begin to taper later than consensus currently anticipates (Q42013). Impact of taper is, based upon our analysis, discounted/reflected incurrent levels of longer-term interest rates. Even so, interest rates (taper or notaper) are likely to rise modestly through 2013 and 2014 in response to

improving economic data and rising inflation. Level of interest rates (10-year USTreasury notes) not likely to derail recovery (and bull market) until their yieldexceeds 3.0%. At that level, the impact on housing and auto sales may begin tobecome somewhat significant.

John Kattar, Ardent Asset Advisors: The Fed has done a masterful job ofinoculating markets against a tapering of QE, but there is a bit more to do, andthere is no rush. The September statement will be used to provide the clearestpossible indication of a change in December or early 2014, but no tapering inSeptember.

Barry Knapp, Barclays PLC: Equity market Fed policy normalization relatedcorrections during prior business cycles are strikingly similar in terms of the sizeof the correction and sector action despite decided differences in the pace ofremoval of policy accommodation. The correction is unlikely to be completeuntil domestically leveraged stocks (small caps, financials and consumerdiscretionary) move sharply lower. This is likely to occur closer to theSeptember tapering.


31/33


FED SURVEY

David Kotok, Cumberland Advisors: Fedspeak has raised home mortgage

rates and is slowing housing and recovery.

Subodh Kumar, Subodh Kumar & Associates: Combining austerity tocontrol deficits in advanced countries/inflation in emerging countries and growthin both equals challenges for markets and policymakers. Investment focusshould be on quality, especially in equities and low duration in fixed income.Maintain alternate assets as a hedge.

Guy LeBas, Janney Montgomery Scott: The discussion about when the Fedtapers misses the point. The power of QE-infinity was that it was an open-ended program. Now it no longer is. Therefore most of the damage to the bond

markets was priced in when QE-infinity became QE-for-a-little-while.

Donald Luskin, Trend Macrolytics: How come you don't have former Fedvice chair Roger Ferguson on your list of successors? He's bi-partisan --appointed by both Clinton and Bush. He's African-American. Greenspan favoredhim over Bernanke in 2006. Oh, wait -- Obama will never pick him. He's hadprivate sector experience!

Rob Morgan, Fulcrum Securities: Fed Chair Bernanke first broached the'tapering' topic on June 19th, and the Dow the next day had its worst day of the

year - down 354 points. When he discussed the topic with Congress in mid-July,the Dow and S&P 500 hit new highs. This leads me to believe that marketshave largely discounted the tapering program.

Joel Naroff, Naroff Economic Advisors: Until the unemployment rate getsbelow 7%, wage gains and thus the consumer will remain sluggish. But oncethat happens, the economy could accelerate sharply and that will likely force theFed's hand sooner than most currently expect.

Michael Painchaud, Market Profile Theorems: The end to Phase 1 in theplan to stabilize the economic system, namely to re-liquefy the banking system,is long overdue. The start of Phase 2, the direct pumping of liquidity by thegovernment to the manufacturing sector - particularly small businesses, and atrates at least as favorable as those afforded the large banks in Phase 1 - is longoverdue. It is the fastest way to spur a meaningful drop in the unemploymentrate, and is the only true road to real recovery.


32/33


FED SURVEYJames Paulsen, Wells Capital Management: During the rest of this year, wewill be testing the widespread thought that the economic recovery and the stock

market simply represent a sugar high tethered to the Fed, and when they pullaway both the economy and stock market will cave. I think we will debunk this"Great Fed Myth" and enter 2014 with heightened confidence this economic andstock market recovery finally is standing on its own two feet. That is, the Fedwill find that "stopping QE" will prove a most beneficial policy by significantlylifting private sector confidence! Goodbye QE and good riddance!!

Lynn Reaser, Point Loma Nazarene University: Both stocks and bondshave joined the Fed in believing that economic growth will pick up in comingmonths. These projections could be derailed by higher long-term rates, higheroil prices, weak exports, and an erratic consumer.

John Roberts, Hilliard Lyons: We remain worried that some exogenousfactor, mainly political or international, will cause a market break following themove to all-time highs we have seen this year and with equities nearing the highend of fair value in a period with extended profit margins and rising interestrates. Adding to that is the worry of revenue growth remaining sluggish whileearnings exceed expectations.

Chris Rupkey, Bank of Tokyo-Mitsubishi: The Fed fought inflation for toolong and now they are making the mistake of fighting unemployment for too

long. They can't continue to ease policy five years after the recession ended.The press is giving them a free pass on this. Hit them harder. There is no massunemployment out there.

John Ryding, RDQ Economics: The problems holding back economic growthare not monetary in nature and the risk of deflation is very low. The Fed shouldtaper more quickly and exit from zero rates. It won't, however!

Richard Steinberg, Steinberg Global Asset Management: If the Fed staysdovish and the market has a further leg up, we will call it a FOMO rally - Fear OfMissing Out. Over 50%+ of the investing public is not currently invested inequities. We expect prices to be higher in 2014, though not straight up, but agradual climb. More of a fits and starts pattern than a staircase.

Diane Swonk, Mesirow Financial: The sleeper issue for the Fed has beenbelow-target inflation. There is a sense the last statement did not say as muchas it should have. The timing is also now conducive to giving a nod to Bullard,and the contingent he represents on inflation concerns.


33/33

FED SURVEYMark Vitner, Wells Fargo: Most of the factors listed as threats to the

economy have been weights on the economic recovery and not really threatenedit. Policy missteps have typically played a role in past recessions, which is why Icited this concern.

Clare Zempel, Zempel Strategic: The market monetarist (nominal GDPtargeting) case remains the best explanation for the 2007-9 crisis and recession,and offers the best chance for faster real economic expansion.

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CNBC Fed Survey - July 30, 2013

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