FED SURVEY

October 29, 2013

These survey results represent the opinions of 40 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 collected on October 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 is the total amount of additional asset purchases the Federal Reserve will have made?
2013
$1,200

2014

$1,023.7
$1,000

$858.8
$800

$917.0 $936.6

$883.6

$948.5 $921.9 $941.9

$646.1
$600 Billions $400

$370.6 $367.1 $373.5 $374.8 $381.9

$200

$0

1/29/2013

4/30/2013

7/30/2013

9/17/2013

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October 29, 2013 2. In what month do you expect the Fed to begin tapering its purchases?
June 18
60%

July 30

Sept 6

Sept 17

Oct 29

Averages
50%

Jan 29: Dec 2013 March 19: Jan 2014

40%

April 30: Feb 2014 June 18: Dec 2013

30%

July 30: November 2013

Sep 6: November 2013

20%

Sept 17: November 2013 Oct 29: April 2014

Plurality of 45% said March 2014

10%

0%

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October 29, 2013

3. By how much do you believe the Fed will reduce its asset purchases in that first month?

$25

$22.1
$20

$19.2

$15

$14.5

$14.2

Billions

$12.6
On average, respondents believe the Fed will maintain its new level of asset purchases for 3.03 months.

$10

$5

$0 July 5 July 30 Sept 6 Sept 17 Oct 29

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October 29, 2013 4. What mix of Treasuries vs. mortgage-backed securities do you expect in the Federal Reserve's taper?
Treasuries
100%

MBS

90%

28%
80%

29%

70%

60%

50%

40%

72%
30%

71%

20%

10%

0% Sep 17 Oct 29

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October 29, 2013 5. When do you expect the Federal Reserve will completely stop purchasing assets?
June 18
30%

July 30

Sept 6

Sept 17

Oct 29

Averages
25%

Jan 29: Nov 2013 Mar 19: May 2014 Apr 30: July 2014 Jun 18: July 2014 July 30: Aug 2014 Sept 6: Aug 2014 Sept 17: Aug 2014

20%

15%

Oct 29: Dec 2014

Plurality of 23% said Oct 14 15% said later than Jun 2015

10%

5%

0%

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October 29, 2013 6. Based on your expectations for tapering, what percentage of the ultimate impact on each market is already discounted in the overall prices of that market?
July 30
90% 81%81% 80% 73% 70% 70% 66% 58% 58% 50% 82%81%

Sept 6

Sept 17

Oct 29

68%

60%

57%

50%

40%

30%

20%

10%

0% Treasuries Equities Mortgages

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October 29, 2013 7. Compared to Ben Bernanke, Fed chair nominee Janet Yellen will be:
50%

45%

44%

40%

35%

30%

28%

25%

20%

15%
15%

10%
10%

5%

3% 0%
Much more dovish Somewhat No different more dovish Somewhat more hawkish Much more Don't hawkish know/unsure

0%

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October 29, 2013 8. Please rate the following four candidates for the Fed chairmans job on the listed qualities. (On a scale of 1 to 5, where a higher number means a higher rating.)
Bernanke 2.00 Monetary policy expertise (4.52) Yellen 2.50 3.00 3.50 4.00 4.50
4.35 4.05

5.00

Ability to manage a financial crisis (4.30)

4.22 3.42

Good communication skills (4.22)

3.32 3.44

Respect from financial markets (4.18)

3.95 3.54

Concern about inflation (4.08)

3.35 2.89

Financial market expertise (4.04)

3.38 3.08

Respect from international financial leaders (3.41)

4.16 3.65

Concern about unemployment (3.39)

3.42 3.34

3.97 4.57

Good political skills (3.27)

Banking regulatory expertise (2.94)

3.36 3.31

Numbers in parentheses to the right of the qualities represent how essential they are to the job of Fed chairman on a scale of 1 (least) to 5 (most), as ranked in the July 30 survey.

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October 29, 2013

Sum of candidate ratings weighted by essentialness of each quality. 160

140

Banking regulatory expertise (2.94) 120 Good political skills (3.27) Concern about unemployment (3.39) 100 Respect from international financial leaders (3.41) Financial market expertise (4.04) 80 Concern about inflation (4.08) Respect from financial markets (4.18) 60 Good communication skills (4.22) Ability to manage a financial crisis (4.30) Monetary policy expertise (4.52) 20

40

0 Yellen Bernanke

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October 29, 2013 9. What grade would you give Fed Chairman Ben Bernanke?
Dec 22, 2010 0% July 21, 2011 10% Jan 23, 2012 Sept 17, 2013 20% 30% 40% 26% 22% 23% 30% 21% 42% B 48% 48% 48% 50% 22% 19% C 13% 18% 21% 5% 5% D 2% 0% 5% 3% 0% 2% 3% 9% Oct 29, 2013 50% 60%

Average for Sept 17 survey:

B (3.00) Average for Oct 29 survey:

Don't know/unsure

4% 7% 0% 5%

B- (2.77)

Numerical average based on A=4, B=3, C=2, D=1, F=0

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October 29, 2013 Comments on this question:

Robert Brusca, Fact and Opinion Economics: (B) A for crisis management and response. B/C for policy in the recovery. John Donaldson, Haverford Trust Co.: (A) If he had not been on duty, the recession could have been much, much worse. Mike Dueker, Russell Investments: (B) Bernanke was great at managing through a financial crisis, but not as strong at understanding what would precipitate a financial crisis. Stuart Hoffman, PNC: (A) An A for effort and for results. Lee Hoskins, Pacific Research Institute: (C) Bernanke resurrected the discredited Phillips curve with strong support from Yellen, so expect a weak response to rising inflation in the future. Barry Knapp, Barclays PLC: (B) Crisis management is an A, impact of 5+ years of ZIRP (zero interest rate policy) and UMP is likely to prove less favorable. David Kotok, Cumberland Advisors: (B) Before Lehman, results were based on academic view. After Lehman failed, he became seasoned and forceful. Subodh Kumar, Subodh Kumar & Associates: (C) The total Bernanke consideration is pre-2007 miss of bubble; good skills at QE1 at start of crisis; miss of QE3 in boosting real growth. Justin Lederer, Cantor Fitzgerald: (B) Based on 2008 actions. Lynn Reaser, Point Loma Nazarene University: (B) Mr. Bernanke handled the financial crisis very well. The exit strategy and implementation strategy from monetary ease remain to be tested. John Roberts, Hilliard Lyons: (B) Really a B+. He helped inflate the bubble in the first place, and probably gets a low grade because of this. However, the response to the crisis was such to overwhelm those issues. The question, however, becomes whether he extends the current accommodation too long. From that perspective, you could probably give him an incomplete because the ultimate grade will not be apparent CNBC Fed Survey October 29, 2013
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October 29, 2013

for a significant period after he leaves. John Ryding, RDQ Economics: (C) A+ for handling of financial crisis, C for communication, D for monetary policy. Diane Swonk, Mesirow Financial: (A) We will look back and realize he saved us from a depression worse than the Great Depression. Peter Tanous, Lynx Investment Advisory: (Don't Know/Unsure) We won't know the final grade until we see the effects of the massive increase in the Fed's balance sheet and the effect, if any, of "printing" huge amounts of new money. Jason Trennert, Strategas: (B) He deserves an A+ for understanding that he could increase the size of the Fed's balance sheet without creating inflation. If there is a problem, in my view it's that his munificence has allowed fiscal policy makers to completely shirk their responsibilities to the American people.
.

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October 29, 2013 10. Overall, how do you rate the clarity and credibility of Fed communications?
60%

55%

50%

40%

30%

21%
20%

18%

10%

5% 0%
Very clear and Somewhat clear Somewhat not credible and credible clear and credible Not very clear and credible Don't know/unsure

0%

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October 29, 2013 11. Since September 2012, market functioning in the government bond market has:
70%

65%

60%

60%

Stayed the same

same 50%

50% 46% 42%

47%

40%

30%

29%

Worsened somewhat

25% 19%

27%

20%

24%

15%
15%
10%
Worsened a lot

Improved somewhat

20% 16%
Improved a lot

17% 11% 12% 2%

June 18

8% 4% 2%
July 30

2%
0% March 19

2%
April 30

2%
Sept 17

3% 3%
Oct 29

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October 29, 2013 12. Since September 2012, market functioning in the mortgagebacked security market market has:
45%

41%
40%

39% 37%

35%

Stayed the same

31%
30%

32% 31% 31% 29%

29%
25%

22%
20%

23% 21% 21%

Improved somewhat

20%
15%

20%

20% 18%

18%

Worsened somewhat

10%
Worsened a lot

5%

4% 2%

4%

5% 5%

6% 5% 4%
July 30

5%

5%
Improved a lot

0% March 19

2%
April 30 June 18

3%
Oct 29

Sept 17

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October 29, 2013

13. Compared with the debate at the beginning of the year, the next round of discussions to raise the debt ceiling will be:
July 30
80%

Sept 17

Oct 29

70%

67%

60%

50%

49% 44%

40%

35%
30%

24%
20%

27% 23%

19%

10%
10%

2%
0% More contentious About the same Less contentious

0% 0%

Don't know/unsure

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October 29, 2013 What is the probability that the United States fails to raise the debt ceiling in the coming months and defaults on at least some of its payments?
July 30
70%

Sept 17

Oct 29

60%

50% Percentage of respondents

Averages July 30: 6.6% Sept 17: 8.4% Oct 29: 4.6%

40%

30%

20%

10%

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

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October 29, 2013 14. When it comes to the budget deficit, the United States:
Should urgently enact a plan that puts it on a path toward a sustainable budget 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 sustainable budget deficit Don't know/unsure
90%

80%
80%

70%

67%

60%

52%
50%

52% 44%

50%

53%

40%

39% 40% 40% 41% 40%

30%

25% 16% 12% 9% 4% 4% 8% 9% 5%

20%

10%

0% January 29 March 19 April 30 June 18 July 30 Sept 17 Oct 29

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October 29, 2013 15. Where do you expect the S&P 500 stock index will be on ?
December 31, 2013
1,850

June 30, 2014

1816

1,800

1751
1,750

1752

1753

1723 1691 1655

1709
1685 1654

1,700

1,650

1612
1,600

1589 1547

1,550

1,500

1,450

1,400 Jan 29 2013 Mar 19 Apr 30 Jun 18 Jul 30 Sep 6 Sep 30 Oct 29

Survey Dates

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October 29, 2013 16. What do you expect the yield on the 10-year Treasury note will be on ?
December 31, 2013
4.0%

June 30, 2014

3.5%

3.33% 3.10% 3.00%

3.39% 3.02% 3.00% 2.65%

3.0%

2.80% 2.41% 2.10%

2.73%

2.5%

2.31%

2.35%

2.0%

1.5%

1.0%

0.5%

0.0% Jan 29 2013 Mar 19 Apr 30 Jun 18 Jul 30 Sep 6 Sep 30 Oct 29

Survey Dates

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October 29, 2013 17. What is your forecast for the year-over-year percentage change in real U.S. GDP for ?
2013
3.0%

2014

+2.7% 2.5% +2.6% +2.6%

+2.6% +2.6% +2.6% +2.6% +2.6% +2.5% +2.5%

+2.3% +2.2% 2.0%

+2.1% +2.1% +2.1% +2.1% +2.0% +1.9% +1.9%

+1.9%

1.5%

1.0%

Survey Dates

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October 29, 2013 18. What effect, if any, did the government shutdown/debt ceiling debate have on your GDP forecast for these quarters?
2013 Q4
80%

2014 Q1

2014 Q2

Averages:
70%

2013 Q4 -0.29% 2014 Q1 No change 2014 Q2 +0.04%

60%

50%

40%

30%

20%

10%

0%

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October 29, 2013 19. (Asked if forecast was lowered) How much of the negative impact came from:
Rise in uncertainty
100% 3%

Government spending reductions

3%

Other

90%

19% 26%

80%

44%
70%

60%

50%

40%

81% 71%

30%

53%
20%

10%

0% 2013 Q4 2014 Q1 2014 Q2

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October 29, 2013 21. Compared to last year, the holiday shopping season will be:
40%

35%

35% 31%

30%

25%

23%

20%

15%

10%

8% 4%

5%

0% A lot better Somewhat better The same Somewhat worse

0%
A lot worse Don't know/unsure

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October 29, 2013 22. When do you think the FOMC will first increase the fed funds rate?
Increase fed funds rate (Average response)

Survey Date Dec 11, 2012 2013 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4

2017 or later
2015 Q1 2015 Q1 2015 Q1 2015 Q2 2015 Q2 2015 Q3 2015 Q2 2015 Q3 2015 Q3

Jan 29, 2013

Mar 19, 2013

Apr 30, 2013

Jun 18, 2013

Jul 30, 2013

Sept 6, 2013

Sept 17, 2013

Sept 6, 2013

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October 29, 2013 23. Currently, Fed policy is not to raise interest rates until the unemployment rate is at least 6.5%. Will the Fed change that guidance?
Jul 30
70%

Sep 17

Oct 29

60%

60%

51%
50%

47% 44% 42%

40%

30%

30%

20%

10%

10%
4%

11%

0% Yes No Don't know/unsure

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October 29, 2013

24. Where do you expect the fed funds target rate will be on ?
Dec 31, 2013 June 30, 2014 Dec 31, 2014 Dec 31, 2015

1.2%

1.0%

0.97% 0.92%

0.8%

0.82%

0.6%

0.4%
0.28% 0.27% 0.20% 0.21% 0.17% 0.19% 0.19% 0.21% 0.21% 0.18% 0.16% 0.14% 0.13% 0.11%

0.33%

0.2%

0.16% 0.15%

0.13% 0.13%

0.0% Jul 31 Sep 12 Dec 11 Jan 29 2013 Mar 19 Apr 30 Jun Jul 30 Sep 6 Sep 18 17 Oct 29

Survey Dates

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October 29, 2013 25. In the next 12 months, what percent probability do you place on the U.S. entering recession? (0%=No chance of recession, 100%=Certainty of recession)
40%

35% 34.0% 30%

36.1%

28.5% 25.9% 25.5% 26.0% 20.6% 19.1%

25%

20%

20.3%

20.4% 17.6%

18.2%

18.4% 16.9% 16.2%

15%

15.2%

10%

5%

0%

Survey Dates

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October 29, 2013 26. What is the single biggest threat facing the U.S. economic recovery?
Apr 30 Jun 18 0% 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 Too Too little European High Tax/regul much Debt Overall Slow job budget recession budget Deflation gasoline atory deficit /financial ceiling inflation growth prices policies deficit reduction crisis reduction 9% 2% 2% 2% 0% 2% 20% 31% 20% 13% 10% 18% 8% 4% 4% 5% 2% 0% 2% 3% 0% 2% 4% 3% 3% 2% 0% 3% 3% 0% 2% 3% 2% 4% 7% 3% 20% 22% 22% 24% 28% 30% 27% 29% 15% 8% 4% 8% Jul 30 5% Sep 17 10% 15% Oct 29 20% 25% 30% 35%

Don't know/un sure Apr 30 Jun 18 Jul 30 Sep 17 Oct 29 0% 0% 4% 2% 0%

Other

Rise in interest rates

11% 13% 14% 7% 13%

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October 29, 2013 27. What is your primary area of interest?

FED SURVEY
April 30,
Other 21%

Currencies 0% Fixed Income 13%

Economics 45%

Equities 21%

Comments: Robert Brusca, Fact and Opinion Economics: God Help us. John Donaldson, Haverford Trust Co.: The criticism of Yellen as being soft on inflation is unfair. She is fully committed to the Fed's dual mission. There has been so little inflation during her tenure as vice-chair, what opportunity has there been for her to "talk tough" on inflation? Mike Dueker, Russell Investments: While the increase in stock prices in 2013 might provide some optimism to Fed policymakers, they have to consider whether consumption will respond as strongly to stock market wealth as previous estimates suggested. Many people are behind in saving for retirement and they might view stock market gains as more ephemeral than they used to, so their willingness to consume part of recent stock market gains might be
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limited.

October 29, 2013

FED SURVEY Kevin Giddis, Raymond James/Morgan Keegan: Just about the April 30, bull market is about to end because of some time you think the bond newly found economic strength, the U.S. government goes into action, and makes it all better for bonds. This will likely continue into 2014 as well. Thank you Washington!
Stuart Hoffman, PNC: Shorter holiday shopping season will not prevent a rise in holiday sales of 3.0-3.5% from last year. 2 million more employed, high house and stock prices and lower gasoline prices drive holiday sales higher. Lee Hoskins, Pacific Research Institute: Despite all the forward guidance, inflation target and employment rate guide, post-policy action still rests on next month's data. Effective policy requires a longer-term perspective. David Kotok, Cumberland Advisors: Federal government actions have ONLY added to slowing. Congress and the White House have only made things worse than they would otherwise be. Alan Kral, Trevor Stewart Burton & Jacobsen: With an election coming, the Fed will refrain from tightening monetary policy Subodh Kumar, Subodh Kumar & Associates: Fudges on U.S. budget restructuring, European finance restructuring and labor restructuring in Japan are risks for the global economy, quantitative easing (QE) notwithstanding. Another QE collateral risk is that it is likely abetting political procrastination. Quality of delivery and of financial structure should be emphasized in portfolio structure along with cash reserves and other assets for diversification. Rob Morgan, Fulcrum Securities: The weak non-farm payroll report on October 22nd virtually guarantees that the Fed won't taper
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QE until 2014.

October 29, 2013

FED SURVEY Chad Morganlander, Stifel Nicolaus (Washington Crossing April 30, Advisors): Unfortunately, the U.S. economy in 2014 will look similar to 2013. This will force the Federal Reserve to continue QE longer than consensus expectations. Investors should expect sub-par economic growth coupled with modest corporate earnings and top line growth.
James Paulsen, Wells Capital Management: Could we have a bit of an inflation scare sometime in 2014? Yellen will come in as chairman perceived as a dove when the U.S. dollar is already very weak and falling, commodity prices bottomed in 2013 and may be showing signs of lifting again, emerging world economies are reaccelerating after 2 years of slowing while both Europe and Japan are growing again (adding again to global inflation pressures). Inflation stock sectors like materials have been outpacing the stock market in recent months, the Baltic freight rate index has recently exploded higher, annual wage inflation is close to breaking to new highs for the recovery and the unemployment rate may have a 6 percent-ish handle on it just as Yellen takes the helm. Perhaps, most importantly, what if monetary velocity finally turns up in 2014 as it has in every post-war recovery. (This would really change the conversation at the Fed)? I am not suggesting 2014 will produce a major inflation problem, but could it produce a "fear" of inflation for the first time in this recovery? Lynn Reaser, Point Loma Nazarene University: The U.S. economy now faces a crisis in confidence. Monetary policy can now inflate asset prices but will have little impact on spurring more job growth and lower unemployment. John Roberts, Hilliard Lyons: Too much bullishness/complacency currently in the equity markets. While earnings remain good, weak revenue growth remains a worry and with GDP growth as low as it is,
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October 29, 2013 valuations are slightly extended in the current economic environment. April John Ryding, RDQ30, Economics: September seriously hurt the credibility of Fed communications and has left the market focusing excessively on the latest jobs number. Richard Steinberg, Steinberg Global Asset Management: Once we get past the Washington noise (and it will be noisy), the focus will have to be job growth. Unemployed people don't buy goods and services. Diane Swonk, Mesirow Financial: Brinkmanship has cost us in ways we will not know for years to come, economically and geopolitically f

FED SURVEY

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