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

FinancialEdge: Santa's Financial Naughty List For 2010

It looks like it is time once again for St. Nick to tally up the good and bad for the year. While there are some financial folks who belong on the "nice" list (maybe the billionaires who publicly pledged to make sizable bequests?), there is no doubt that the "naughty" list on Wall Street is always quite a bit longer. (For more holiday related reading, check out Top Holiday Budget Busters.)

Then again, maybe the naughty boys and girls on this list should take some cheer from their inclusion - because of their own actions, commodities like lumps of coal are worth more than they have been in a while!

PIGS
While the European sovereign debt crisis undoubtedly stretches back to 2008 (if not earlier), it really heated up early in 2010. Greece was already something of a basket case, but the news kept getting worse, culminating in an international bailout in early May. Amidst all the worries about whether Greece would single-handedly sink a major bank or two, worries began to bubble up that Spain and Portugal would soon be in similar straits. Although Spain and Portugal seem relatively stable for now, Ireland brings the year to a close with its own prolonged financial difficulties and bailout.

There is no shortage of names that can go down on Santa's black list for this one. National governments lied to each other and their citizens about the state of their economies, and then gorged on cheap external debt to fund public largess. Of course, the banks who bought the debt also bought the lie(s) or assumed that they could pass the buck on to the public in the form of bailouts if things went south. Last and not least, some of the citizens of these countries themselves should earn a spot on the list for protesting and demonstrating against their governments for daring to actually try to put themselves on a paying, solvent basis and cutting some of these debt-fueled freebies. (For more, check out How Countries Deal With Debt.)


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http://financialedge.investopedia.com/financial-edge/1110/Santas-Financial-Naughty-List-For-2010.aspx

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