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Quantitative Easing - Effects When it stops
Old 02-02-2011, 04:24 AM   #1
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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....
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Old 02-02-2011, 07:26 AM   #2
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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...
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Old 02-02-2011, 08:09 AM   #3
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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.
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Old 02-02-2011, 09:35 AM   #4
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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.
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Old 02-02-2011, 12:22 PM   #5
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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.
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Old 02-02-2011, 01:15 PM   #6
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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.
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Old 02-02-2011, 03:14 PM   #7
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QE. I recall seeing QE sunken in Hong Kong harbor.


Oh never mind, different QE. Don't know nothing abut this one.
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