Presenting The World’s Most Profitable Hedge Fund/Bank Ever

When one has $2.9 trillion in costless AUM (because if the cost is breached, one just doubles down, especially if one prints the money), it is not all that surprising to generate $77 billion in profits in one year, or even $385 billion in profits in the past 10 years. Yet it is still a stunning number considering the rest of the $2 trillion hedge fund industry lost about 10% in 2011. Which is why we all bow down to what is without doubt the world’s most lucrative and profitable generator of P&L in history: the Federal Reserve, which for the second year in a row has printed (pun intended) over $70 billion in profits. And who is the lucky recipient of this profit? US Treasury of course, which for the second year in a row will pocket all the proceeds from Portfolio Manager Ben’s immaculate trading perfection. Of course, there is one caveat for this spotless performance sheet: what happens when Fed interest expense surpasses interest income? But why worry – everyone tells us this can never happen, so it obviously can never happen…. I think Ben will be the next Warren Buffet!

Total assets on the Fed’s balance sheet stood at a near- record $2.92 trillion on Jan. 4. The central bank expanded its portfolio by purchasing $2.3 trillion in U.S. Treasury debt, mortgage-backed securities and housing agency debt to push down longer-term interest rates once its benchmark lending rate hit zero in December 2008. The Fed expanded its portfolio in two rounds of asset purchases, known as quantitative easing.

Because the Fed funds itself by emitting currency on which it pays no interest, or by paying 0.25 percent on the deposits banks keep at the Fed, the central bank enjoys positive interest income. The yield on the 10-year Treasury note was 1.97 percent at 11:27 a.m. today in New York.

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