Tuesday, November 23, 2010

FinancialEdge: Who Stands To Benefit From QE2?

The markets have been all atwitter from the very first mention of the next round of quantitative easing via the Fed. As with any government (or in the case of the Fed, quasi-government) program, there will be winners, losers and unintended consequences. (For a closer look at QE, also check out Quantitative Easing: What's In A Name?)


All told, the Fed expects to inject $600 billion into the system, primarily by having the Federal Reserve Bank of New York acquire Treasury securities from primary dealers like Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Bank of America's (NYSE:BAC) Merrill Lynch. Although the precise details of the program may change as time goes on, the systematic purchases will likely have the most impact on the medium area of the yield curve.

The idea here is that the Fed says it wants to fight deflation and produce something on the order of 2% inflation. It is an open question as to where exactly the Fed is seeing deflation. True, housing prices are still dropping, but food prices are higher, gas prices are higher, electricity prices are flat-to-higher and so on. Nevertheless, a $600 billion program comes to almost 7% of the latest M2 money supply reading, so it will clearly have some impact on the economy and markets.

Please follow the link for the full piece:
http://financialedge.investopedia.com/financial-edge/1110/Who-Stands-To-Benefit-From-QE2.aspx

No comments: