While investors enjoy collecting and reading the monthly and year end letters by distinguished hedge fund managers, the only one that really matters is the annual report by the world’s “greatest hedge fund in history” (not our words, those of Warren Buffet). It is here where we find that in 2013, the Fed generated a record $90.5 billion in Interest Income, surpassing the previous all time high of $88 billion set in 2011.
However, despite the record surge in profits, this year the Fed’s remittances to the Treasury fell materially from 2012 (due to the absence of one-time gains), and were virtually unchanged for the past 4 years, at just shy of $80 billion.
But what is most disturbing is that the Fed is getting increasingly less bang for the buck courtesy of its own ZIRP policy where every incremental dollar of debt monetized leads to less and less interest income. This is best shown in the declining Return on Assets: recall that in 2013 the Fed’s total assets rose by over $1 trillion from $2.9 trillion to $4.0 trillion as of December 2013, a 38% increase. And yet the profit boost was a fraction of this increase. Sure enough, ROA tumbled, and continues to drop: at 2.2% down from 2.8% in 2012, the Fed’s “efficiency” is now the lowest since QE began in 2008, when ROA was just 1.9%.
If there was one place where everything was normal, it is in the Fed’s salaries and benefits line. At $3.2 billion it just hit a new all time high, and posted an increase of 4.6% from 2012, a number which incidentally is far more indicative of the real cost of living increases which the Fed is happy to provide for its own employees if nobody else among the 99%.