Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Quantitative Easing - Effects When it stops
Old 02-02-2011, 03:24 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quantitative Easing - Effects When it stops

QE 2 is supposed to end this summer.

What do you think the effect will be on the:

  • Bond market
  • Stock market

Thoughts, opinions, strategies....
__________________

chinaco is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-02-2011, 06:26 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,807
Who knows. To the extent that stimulus money makes a real difference a lot of it will still be coming online after easing ends. My old agency let billions in building contracts many of which haven't even started going up yet -- the money will flow for a long time. So I could make up for the loss. But a lot of this stuff depends on attitudes so if investors and consumer lose confidence as easing ends...
__________________

__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 02-02-2011, 07:09 AM   #3
Recycles dryer sheets
 
Join Date: Aug 2009
Location: westerville
Posts: 242
my guess
On Bonds yields will go to market rates- most likely a bit higher- bond price will bit lower. How much who knows.

Stock prices If I knew I would ER today.
Trawler is offline   Reply With Quote
Old 02-02-2011, 08:35 AM   #4
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,245
QE2 is the fed buying our own bonds, once they stop, I got believe that interest rates have to go up to entice others to buy them, cause a chain reaction....unless the world is in such a bad way that safety trumps return.
TJ
teejayevans is offline   Reply With Quote
Old 02-02-2011, 11:22 AM   #5
Moderator Emeritus
 
Join Date: Oct 2007
Posts: 4,929
Quote:
Originally Posted by chinaco View Post
QE 2 is supposed to end this summer.

What do you think the effect will be on the:

  • Bond market
  • Stock market

Thoughts, opinions, strategies....
There will be almost no effect on the stock market, as the easing program will phase out as other economic activity picks up. There may be a drag on some financial stocks that have based their near term business on free short term money.

For monitarists, the Fed will stop adding to the money supply as the velocity of money starts to increase. Further along, the increase in velocity of money will require the money supply to be reduced, which the Fed will do by selling those Treasuries bought during QE on the secondary market for cash.

The sales of these Treasuries will put downward pressure on the prices of the notes and bonds, or in other words, will raise the interest rates on them. This is, of course, exactly what most economists and the bond market would expect to happen, so this should be a very calm, measured evolution.

Longer term bond prices have already moved in anticipation of this. Note the rise in interest rates (discount in price) for the 10 year and longer Treasuries, for example.
M Paquette is offline   Reply With Quote
Old 02-02-2011, 12:15 PM   #6
Dryer sheet aficionado
Sconie's Avatar
 
Join Date: Mar 2010
Location: Wisconsin
Posts: 31
INHO, I'm not so sure that the stock market won't take a bit of a hit. What QE is doing is dumping massive liquidity into the fiancial markets----and much of it, because of inordinantly low short term interest rates----is being "forced" into the equity markets.
Sconie is offline   Reply With Quote
Old 02-02-2011, 02:14 PM   #7
Thinks s/he gets paid by the post
ls99's Avatar
 
Join Date: May 2008
Posts: 4,815
QE. I recall seeing QE sunken in Hong Kong harbor.


Oh never mind, different QE. Don't know nothing abut this one.
__________________
There must be moderation in everything, including moderation.
ls99 is offline   Reply With Quote
Old 02-09-2018, 02:59 PM   #8
Recycles dryer sheets
nvestysly's Avatar
 
Join Date: Feb 2007
Posts: 436
I'm resurrecting this old thread because I think the topic is pertinent as we go into 2018 and beyond. If the moderators think I should start a new thread I'll do so.

I guess at this point the quantitative easing is complete and we're now into the quantitative tightening as some have called it. I suspect the process may have an adverse impact on the stock market.

What are your thoughts?
__________________
Dreamin' of Streamin'
FIRE'd at 52 on 7/8/11
nvestysly is offline   Reply With Quote
Old 02-09-2018, 04:48 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 3,315
Tightening will not have inverse impact if it is gradual, transparent, and based on some clearly defined target (like x% inflation). I wish they would quit using the word inflation and use growth instead. The "I" word is scary to most folks.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 02-09-2018, 05:41 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,137
Debt is money. Maturing debt results in shrinkage of the money supply. The Fed balance sheet shrinking is a reverse QE. No one knows what will be the result since it has never been experienced before. I think it has to negatively impact all asset values.
jim584672 is offline   Reply With Quote
Old 02-09-2018, 09:12 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 17,826
Not only is the Federal Reserve not purchasing as many treasuries and mortgage-backed bonds now while they are unwinding QE, but the US Treasury is issuing a lot more debt than they have in prior years. So both things put pressure on bonds and thus interest rates.

IMO the huge 2013 rally was asset inflation due to the last QE stage. That had to come out sometime.

And rising rates hurt stocks as they ultimately have to compete with bond and cash yields. Look at which stocks have been hurt the most - REITs, utilities and preferred stocks.

Until now, for the past year, inflation has remained stubbornly below the Fed target. So the equity party continued while the Fed scratched their head at the low inflation readings. Now suddenly the picture is changing and investors have been scrambling.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-09-2018, 09:22 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 17,826
Quote:
Originally Posted by nvestysly View Post
I'm resurrecting this old thread because I think the topic is pertinent as we go into 2018 and beyond. If the moderators think I should start a new thread I'll do so.

I guess at this point the quantitative easing is complete and we're now into the quantitative tightening as some have called it. I suspect the process may have an adverse impact on the stock market.

What are your thoughts?
Actually QE ended in Oct 2014. Over 3 years ago.

Then tightening started as the Fed started raising the Fed funds rate in Dec 2015.

Then they started implementing the QE unwind, or tightening, in Oct 2017, so that program has been going on for a few months, and they are still ramping up. It will take a few years - maybe three.

But until there was some indication of inflationary pressures, the market had not reacted. Now the markets seem to be saying “oh c**p!!!”.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-09-2018, 11:15 PM   #13
Recycles dryer sheets
 
Join Date: May 2015
Location: NorCal
Posts: 87
Quote:
Originally Posted by nvestysly View Post
I'm resurrecting this old thread because I think the topic is pertinent as we go into 2018 and beyond. If the moderators think I should start a new thread I'll do so.

I guess at this point the quantitative easing is complete and we're now into the quantitative tightening as some have called it. I suspect the process may have an adverse impact on the stock market.

What are your thoughts?
As I recall, there was a bit of a lag in asset price inflation after QE started. So I would expect some of the same but in reverse when QE unwind gets some wind behind it. QE drove interest rates to near zero and resulted in credit card, auto loan, and student loan debt all at all time highs. The unwind should drive interest rates up and have some deflationary affect on asset prices.

Here is a link to an interesting article about the QE unwind that just started a couple of months ago:

https://wolfstreet.com/2018/02/01/fe...rates-sharply/
FIREd_2015 is offline   Reply With Quote
Old 02-10-2018, 05:22 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,137
Chart of the Balance Sheet. The roll off has begun.
Attached Images
File Type: png Screenshot from 2018-02-10 07-17-53.png (202.4 KB, 28 views)
jim584672 is offline   Reply With Quote
Old 02-10-2018, 06:34 AM   #15
Thinks s/he gets paid by the post
Tadpole's Avatar
 
Join Date: Jul 2004
Posts: 1,200
Ten years later and we are still finding consequences of the housing/financial bust to worry about. In the interim, I've gone from a young retiree to an old woman facing her 70th birthday. With very little in the market, I've increased wealth by 50% since I retired. (If I had been fully invested that would probably be close to 100% or more.) I just can't worry about every little coming and going of these never-ending consequences.
Tadpole is offline   Reply With Quote
Old 02-10-2018, 07:56 AM   #16
Recycles dryer sheets
nvestysly's Avatar
 
Join Date: Feb 2007
Posts: 436
Quote:
Originally Posted by Tadpole View Post
Ten years later and we are still finding consequences of the housing/financial bust to worry about. In the interim, I've gone from a young retiree to an old woman facing her 70th birthday. With very little in the market, I've increased wealth by 50% since I retired. (If I had been fully invested that would probably be close to 100% or more.) I just can't worry about every little coming and going of these never-ending consequences.
Sounds like you Sleep Well At Night (SWAN) and that's good. It's not that I'm tossing and turning, I'm simply interested in how these large-scale monetary policies of global economic powers impact the average Joe/Jane. As an example, there were negative interest rates in other parts of the world - sometimes even cash is not safe. Similarly, inflation can have a very negative impact on cash.
__________________
Dreamin' of Streamin'
FIRE'd at 52 on 7/8/11
nvestysly is offline   Reply With Quote
Old 02-10-2018, 12:18 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,678
Quote:
Originally Posted by audreyh1 View Post
Not only is the Federal Reserve not purchasing as many treasuries and mortgage-backed bonds now while they are unwinding QE, but the US Treasury is issuing a lot more debt than they have in prior years. So both things put pressure on bonds and thus interest rates.

IMO the huge 2013 rally was asset inflation due to the last QE stage. That had to come out sometime.

And rising rates hurt stocks as they ultimately have to compete with bond and cash yields. Look at which stocks have been hurt the most - REITs, utilities and preferred stocks.

Until now, for the past year, inflation has remained stubbornly below the Fed target. So the equity party continued while the Fed scratched their head at the low inflation readings. Now suddenly the picture is changing and investors have been scrambling.


I would love to get a slug into water utilities and they have feel about 15% from tops. But, they are still nosebleed. I need 20-25% more of a haircut to start nibbling. Just depends on which preferred stocks one is in... Mine are hanging in plus 1.5% on this current year, but Im working hard flipping them around to keep the boat from taking on any water.
__________________

Mulligan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Quantitative Easing ?????? frayne FIRE Related Public Policy 6 11-06-2010 07:31 PM
Quantitative Easing mark500 FIRE and Money 2 03-15-2009 07:25 PM
Quantitative Easing - or how to create money RonBoyd FIRE and Money 0 01-05-2009 09:31 AM
Protracted recession and it's effects Canadian Grunt Young Dreamers 105 09-16-2008 02:28 PM
Hypertension May Have Direct Effects on Disability simple girl Health and Early Retirement 2 11-21-2007 02:34 PM

 

 
All times are GMT -6. The time now is 09:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.