Tuesday, June 7, 2011

FinancialEdge: QE2 - The End Is Near

With the end of June in sight, so too is the end of the latest round of focused quantitative easing from the U.S. Federal Reserve commonly called "QE 2." Assuming that the program ends as planned, the Fed will have bought about $600 billion of various Treasury securities since late 2010, in addition to whatever agency debt proceeds were "re-invested" into Treasurys.


To say that QE2 has been controversial is a massive understatement. For all of the angst and discussion of it, it is difficult to pinpoint exactly what it has, or has not, done and it is likewise difficult to predict what will happen in the aftermath of the program. That is the problem with monetary policy - it is one tool in a complex global ecosystem of inputs and influences. (For related reading, see Quantitative Easing: What's In A Name?)

Re-inflated Financial Markets May Lose Air
On first glance, it looks like the end of QE2 should be bad news for equity and commodity markets. Both have been quite strong since the announcement of QE2, and both stocks and commodities frequently outperform in low-rate environments. Particularly in the case of the stock market, QE2 has allowed once-troubled companies to roll over debt and issue stock in an effort to shore up balance sheets.

To read the full column, please click below:
http://financialedge.investopedia.com/financial-edge/0611/QE2-The-End-Is-Near.aspx

2 comments:

Anonymous said...

What "everybody knows" usually turns out to be worthless. As someone once said, "Markets are perverse and do whatever they have to do to make the most people wrong." The end of QE2 has been long anticipated and the markets are trying to decide if there will be a QE3 or not. So, it's likely that the end of QE2 has already been priced in and should turn out to be a non-event.

Stephen Simpson said...

PI - Hard to argue with that.