Oct

14

I have yet to see/hear/read about an investor who believes that QE will change the fundamentals other than inflation, but that's probably because I only watch CNBC sporadically. The reason it seems to be a positive for the market is (a) the self-perpetuating belief that you can't fight the Fed (b) somehow all this inflation is likely to be positive for stock prices (c) they will do whatever it takes to prop up the market until the election and see (a) for the conclusion.


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2 Comments so far

  1. Kristian Blom on October 15, 2010 9:58 pm

    I just do not see how QE1 and 2 MUST create inflation?

    Bottomline from my experience is: if there is no demand for credit there is no inflation.

    What am I missing?

  2. Gary Rogan on October 16, 2010 10:02 pm

    They clearly have not created a lot if you look at official core inflation numbers. Commodity prices are rising fast though. The stated intention is to create inflation. Once you place all that cash on the banks’ balance sheets there are tools to make them use it for other purposes besides earning interest either through the Treasury or the Fed. Nobody can predict the exact scenario but when they decide to use it they will bid up whatever it is they will chose to speculate in. It’s hard to know if that will be enough to offset the loss of the monetary supply due to credit destruction. The point of my comment was that nobody expects anything beneficial in terms of economic improvement to come from QE other than the guys voting for it, but many do expect it to prop up the market.

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