Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

QE3 Gets Priced Into Markets

Stock-Markets / Quantitative Easing Aug 25, 2011 - 02:51 AM GMT

By: Dr_Jeff_Lewis

Stock-Markets

Before Ben Bernanke lets a single sound slip from his mouth this week, investors have already put their money where Bernanke’s mouth is.  Investors want a minimum of $500 billion in quantitative easing, betting on rising Treasury prices when Bernanke addresses the press about what the Fed’s next move might be.


Most analysts remain bearish on the possibility, noting that recent indecision from the Fed may prove to make QE3 a challenging proposition to the Fed Board of Governors, as well as the American public.   At least one Federal Reserve member is pointing towards the structural difficulties of using monetary policy as a lever to incite economic growth.

Holding Fed Hostage

Investors have long been capable of holding the Fed hostage when it comes to quantitative easing, reduced interest rates, or any other monetary policy decision.  Through a series of trades on the fair value of US Treasuries, as well as futures on the central bank’s benchmark rate, traders can essentially guarantee Fed action by creating better benchmarks.  Wall Street looks for any event that beats or meets expectations, and the Federal Reserve’s policy decisions are not to be left out of the status quo.

Behind the scenes, bankers have even more at stake on a Fed policy decision.  By using record low interest rates to purchase investment grade securities, especially corporate stock, the financial markets have priced in very consistent long-term growth in the American economy.  Investors are buying equities for their dividends, using cheap leveraged fueled by the Fed’s balance sheets.  Already, investors have used leverage in 2011 to a degree not seen since the days leading up to the financial crisis.

Bailing Out the World

Ben Bernanke has a tough crowd to please outside the realm of Wall Street analysts.  He is now the proxy for economic growth not just for the 300 million Americans, but for the 7 billion people all around the world.

In extending cheap credit to get the US economy back on track, investors are keen on taking dollars overseas for direct investment, propping up emerging market equity, fixed income, and government-related securities.  Pulling the rug out from underneath investors would necessarily shake out the biggest growth stories since 2009, a move which would also cause trickle down concerns in the United States as corporate profits decline.

The developed markets seem to have already found a saturation point.  The European Union is expected to grow at just over 2% next year, and US growth prospects for 2012 were recently reduced to 1.1-1.6%, a rate which is not conducive to a full-blown recovery.  If stimulus in the form of easing money was actually the solution to growth, one has to wonder why growth is impossible to find.  Could it just be that all existing pockets needing investment interest have been stuffed to the brim?  It may just be that banks secured by the US Treasury can now afford to speculate in emerging markets, where the risk-to-reward ratio is always positive on the premise of future bailouts.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in