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QE was a ‘nonevent’: Billion-dollar bond manager

Billion-dollar bond manager: QE didn't matter

The Federal Reserve has just announced the end to its asset-purchasing program, which is known as "quantitative easing." But for one billion-dollar bond fund manager, that's no cause for concern. In fact, he says the QE program was none too significant for the economy or for markets.

"I frankly think QE3 was a complete waste of time," John Lekas said Thursday on CNBC's "Futures Now."

Lekas, CEO and senior portfolio manager at Leader Capital (which has $1.2 billion under advisory), says that the bond market has consistently indicated that the end of QE was not worrisome.

"Every time they've talked about ending QE, interest rates went down, the 30-year rallied, and that should shock people. Because in theory, ending that bond-buying program, rates should have gone up and bond prices should have sold off," Lekas pointed out.

But how could it be that the Fed's much-obsessed-over bond-buying program had a minute impact? Lekas says a comparison of two data sets shows something very interesting.

"During all the QE programs, [the Fed] bought $2.64 trillion worth of Treasurys. If you look at excess reserves, meaning that the bank just took that money and put it into the Fed—it's $2.67 trillion," Lekas said. "Meaning it was a nonevent, it never mattered, and I don't know why everyone thought it was so important."

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Federal Reserve Chair Janet Yellen delivers opening remarks at the National Summit on Diversity in the Economics Profession hosted by the Federal Reserve, Oct. 30, 2014, in Washington.
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Still, that doesn't mean that the fund manager is sanguine about the U.S. economy. He points out that the 30-year Treasury bond is currently yielding just more than 3 percent, which appears to price in precious little economic growth.

In fact, given the market action, he discounts recent signs that the economy is improving, like the 3.5 percent GDP growth rate logged in the third quarter.

"The bond market's telling you that it disagrees with the GDP number and the growth forecasts that are generally out there," Lekas said. "I believe in markets, which is why I look at the commodities which are deep pools of money, I look at the Treasury market which is a deep pool of money and I look at markets to make my decisions."

If the Fed raises its target federal funds rate too soon, then, the economy could be in trouble given that it would be doing it "based on numbers that I don't think have much validity."

Sufficie it to say that while Lekas would quibble about the perceived effectiveness of quantitative easing, he never doubts the impact of ultralow short-term rates.

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