The longer, the better

We're obviously well into wild-guess territory here if we're comparing some hypothetical schedule for selling down the portfolio to some hypothetical schedule for a mix of Treasury sales and portfolio run-off with Treasury maturities.

But both approaches, the conventional wisdom and the potential "let them mature" approach have one thing in common: They get a lot easier and are a lot less risky if implemented over more time rather than less. Ending the quantitative easing program of asset buying and then selling off part of the Fed's portfolio of Treasurys and mortgage-backed securities is a lot less likely to crash the economy if the start of that effort can be delayed as long as possible and the effort can be stretched over many years.

Same with a "let them mature" approach. This works only if the Fed has lots of time.

So how does the Fed get more time?

Well, there's remarkably little that the Federal Reserve can do itself. The Fed really only has control over short-term interest rates, so there's very little it can do to stop an increase in medium- and long-term interest rates if bond buyers decide they need higher yields to compensate for higher inflation or for a larger supply of Treasurys (and therefore depressed prices).

That's especially true if the Fed is trapped in a scenario where it can't go back to buying Treasurys in these maturities to reduce rates because the central bank is now trying to sell these same assets.

Lower economic growth would give the Fed more time to execute its strategy of either selling or maturing. But that's not an especially palatable alterative.

Remember, the Fed would like to be able to reduce its balance sheet without pushing the U.S. back into a recession of exactly the sort that all this asset-buying was intended to end. That would confirm the opinion of those critics who say that the Fed's whole quantitative easing strategy is doomed because any short-term increase in economic growth will prove temporary. The economy will give back all those gains and more when quantitative easing ends and the Fed has to vacuum up the cash that it pumped into the economy in the first place.

The right crisis here or there

If only the Fed could find a way to increase demand for Treasurys. That would do the trick too. But short of increasing yields -- exactly what Bernanke and crew want to avoid -- the Fed doesn't have any way to increase demand for government paper.

But the right crisis here or there could do the job very nicely, thank you. If another turn of the eurozone debt crisis sends the euro back down against the dollar and produces another flight to safety that sees bond buyers snapping up U.S. Treasurys, that would be exactly the kind of demand increase the Fed needs.

Recent flight-to-safety moments have seen so much demand for Treasurys that yields have actually fallen. For example, the composite yield on Treasurys of maturities of 10 years or longer hit its 2012 low at 2.11% on July 25, just before European Central Bank President Mario Draghi's speech promising to do "whatever it takes" to save the eurozone.

Now the Fed couldn't conjure up a crisis in the eurozone -- or in some other part of the global financial system -- even if it wanted to. And there's no evidence that the Fed is wishing for another significant crisis anywhere. A crisis in another economy, especially in the economy of a major trading partner, would take a bite out of U.S. economic growth just as the Fed is trying to get that growth to self-sustaining levels. And if a crisis became serious enough, it would force the Fed back into the front lines of battle to make sure there's enough liquidity in the global system just when it is trying to reduce its role in that area.

 But wished for or not, with all the nasty consequences a crisis brings, it is nonetheless true that the right amount of crisis -- enough to send some extra demand toward Treasurys on moderate amounts of fear and yet not enough to imperil U.S. economic growth or U.S. asset prices -- does buy the Federal Reserve time to execute whatever exit strategy it has decided to pursue with lower risk.

Stocks look good through September

I think the eurozone should provide that kind of just-right crisis through the German elections in September. Politics will make it impossible for eurozone countries to make significant progress on any of the issues confronting them until after German Chancellor Angela Merkel faces German voters.

The Fed needs more time than that, however. Will the U.S. central bank get it? It depends on how deep the recession gets in France and how badly Italy and Spain miss their budget targets because of the recessions in those countries.

Through September, a series of new crises in the eurozone should be enough to keep U.S. medium and long-term interest rates low. That in turn should keep worries about a Fed exit strategy from significantly depressing U.S. stock prices.

A rally in U.S. stocks during this period has clear sailing from monetary policy. Now all investors need is for companies to deliver earnings growth and for Washington, D.C., to avoid doing anything stupid.

That doesn't add up to the greatest odds that I've ever seen in favor of a rally. But it does suggest that the market stands a reasonable chance of advancing and it does tell you where the risk lies in this period.

After September's German elections? My guess at this point is that we'll see an outbreak of progress on eurozone problems in the months after the election that will reduce the need for investors to seek the safety of U.S. Treasurys.

I'd certainly want to revisit the odds for another round in the eurozone crisis and for the likelihood that the Fed might get the time it needs to execute its exit strategy in the October-December period.

Updates to Jubak's picks

These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios.

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Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.

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