{"id":28930,"date":"2012-04-10T01:14:16","date_gmt":"2012-04-10T05:14:16","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/04\/qe-why-we-can-expect-more-money-printing-from-central-banks\/"},"modified":"2012-04-10T01:14:16","modified_gmt":"2012-04-10T05:14:16","slug":"qe-why-we-can-expect-more-money-printing-from-central-banks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/04\/10\/qe-why-we-can-expect-more-money-printing-from-central-banks\/","title":{"rendered":"QE: Why We Can Expect More Money Printing from Central Banks"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

QE<\/strong> is off the table – for now.<\/p>\n

Our financial system is nothing short of absurd.<\/p>\n

We have a global marketplace, where millions of people trade countless different products, both real and financial. You can buy exposure to virtually any economy in the world, and any asset class you like.<\/p>\n

An almost infinite number of variables are acting on this system at any given time. Everything from the weather in Bangkok to the mood swings of European finance ministers has an effect on it.<\/p>\n

And yet, more than anything else, the price movements across this whole elegant network are dependent on one thing: the mutterings of a small group of men in a room in Washington DC.<\/p>\n

So much for free markets\u2026<\/p>\n

<\/span><\/p>\n

The Fed and Spain Spook the Market<\/span><\/h3>\n

Wondering why the wind has dropped out of the markets\u2019 sails in recent days? It\u2019s mainly down to the Federal Reserve.<\/p>\n

Minutes from the Fed\u2019s latest meeting on monetary policy came out. In short, the Fed looks less likely to print more money than investors had expected<\/a>. On the news, the US dollar shot up, gold slid, and stocks took a knock too.<\/p>\n

Even the normally \u2018dovish\u2019 San Francisco Fed president John Williams noted that \u201cthe downside risks to the US economy have lessened\u201d, and that \u201cthe arguments for doing another dose of monetary stimulus aren\u2019t nearly as strong\u201d as they were for the early bursts of quantitative easing<\/a> (QE<\/a>).<\/p>\n

Obviously, the news that the real economy might be improving panicked investors. If that\u2019s true, then they won\u2019t get any more free money to punt in stock markets.<\/p>\n

Things weren\u2019t helped when an auction of Spanish government debt also had trouble getting away. This was doubly painful, because the Spanish government has committed to some pretty severe austerity measures. Whether you believe the country can do it or not, it\u2019s at least making an effort.<\/p>\n

What\u2019s really worrying is that, as Justin Knight of UBS tells the FT<\/em>, \u201cthe international investors who have left the Spanish bond market will probably not come back\u201d. That suggests that the poor appetite for the bonds means that Spanish banks<\/a> \u2013 the main buyers these days \u2013 might be \u201crunning out of LTRO money and therefore stop buying as well\u201d, which would be \u201cserious news for the market\u201d.<\/p>\n

Are Central Banks Really Going to Pull the Plug?<\/span><\/h3>\n

What does all this mean for your money? Let\u2019s deal with the Fed first. We\u2019ve pointed a number of occasions that QE3 might not be quite as readily available as investors had expected.<\/p>\n

There are a number of reasons for this. One of Ben Bernanke\u2019s<\/a> stated main goals has been to drive up stock prices, and so make consumers feel wealthier. Given the first quarter rally, he\u2019s certainly achieved this for now.<\/p>\n

QE is also politically questionable. We\u2019re in the run-up to a US presidential election. It\u2019s quite tricky for the Fed to take any steps to boost the economy that aren\u2019t easily justifiable. They\u2019ll get accused of favouritism otherwise.<\/p>\n

So what it comes down to is that QE3 is off the table until stocks tank again. That\u2019s pretty simple.<\/p>\n

So What Could Make Stocks Tank Again?<\/span><\/h3>\n

It strikes me that two things have underpinned the recent optimism in the markets. Firstly, the signs of a nascent recovery in the US. It\u2019s still the world\u2019s biggest and most important economy. If the good news can continue then that might outweigh the absence of QE3.<\/p>\n

But there\u2019s a second issue. Everyone has effectively assumed Europe away into the background. The base case is that there\u2019ll be a recession there, but that there won\u2019t be a systemic collapse, because the European Central Bank<\/a> (ECB<\/a>) will do what it takes to support the eurozone\u2019s banks and sovereign governments.<\/p>\n

I don\u2019t necessarily think this is wrong. However, I do think the market is underestimating the amount of pain it\u2019ll take to get to that point. And that brings us back to Spain.<\/p>\n

The ECB is walking a much finer line than even the Fed. Mario Draghi<\/a> is a more pragmatic man than his predecessor Jean-Claude Trichet seemed to be. But even Draghi can\u2019t ignore the Germans.<\/p>\n

Currently, European monetary policy is too loose for them. German unions are getting more aggressive with their pay demands. There\u2019s even talk of a housing bubble. But if Draghi indulges Germany, then he throws Spain (not to mention the rest of the eurozone) to the wolves.<\/p>\n

An ugly tug of war between Germany and the rest of the eurozone would rattle markets again. And if the ECB doesn\u2019t step in to print money quickly enough, there\u2019s every reason to think that Ben Bernanke and his friends<\/a> might be forced to instead.<\/p>\n

So in short, I don\u2019t think the money printing<\/a> is over yet. But there may well be another plunge in the markets before we get another dose.<\/p>\n

John Stepek <\/strong><\/p>\n

Contributing Editor, MoneyWeek (UK)<\/strong><\/p>\n

<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>This is an edited version of an article that first appeared in MoneyWeek (UK).<\/a><\/p>\n

<\/em><\/strong><\/p>\n

From the Archives\u2026<\/em><\/strong><\/p>\n

<\/strong><\/p>\n

Disruptive Technology Stocks For Smart Small-Cap Investors<\/a><\/p>\n

2012-04-06 \u2013 Kris Sayce<\/p>\n

ASX 200: This Market is Toast<\/a><\/p>\n

2012-04-05 \u2013 Murray Dawes<\/p>\n

Why Every Bank Will Soon Be a Tax Collector for Every Government Everywhere<\/a><\/p>\n

2012-04-04 \u2013 Merryn Somerset Webb<\/p>\n

Not Even Saudi Arabia Can Save Us From High Oil Prices<\/a><\/p>\n

2012-04-03 \u2013 Jason Simpkins<\/p>\n

Good News For Oil and Resource Investors<\/a><\/p>\n

2012-04-02 \u2013 Dr. Alex Cowie<\/p>\n

<\/strong><\/p>\n

For editorial enquiries and feedback, email letters@moneymorning.com.au<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nQE: Why We Can Expect More Money Printing from Central Banks <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au QE is off the table – for now. Our financial system is nothing short of absurd. We have a global marketplace, where millions of people trade countless different products, both real and financial. You can buy exposure to virtually any economy in the world, and any asset class you like. An almost infinite … <\/p>\n

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