Australian (ASX) Stock Market Forum

End of QE2 = next market crash?

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Interesting reading there. From Bernake's latest comments one could likely deduce he plans on a QE3 - "the central bank has no immediate plans to withdraw support"

http://www.reuters.com/article/2011/04/29/us-usa-fed-bernanke-idUSTRE73S52P20110429

So July could be spared afterall. However, inflation will continue to rise as the $USD continues to decline with a QE3. Sort of stuck between a rock and a hard place the Fed are.

I think a lot of things are going on behind the scenes though... One being a currency war played out with China in a forced bid for the Yuan to appreciate as a result of hot money & rising domestic inflation. The US imo is trying to restore economic balance/power by planning to take it away from others. This will ensure their (US) standing as the world's super power in the long term, but who knows what it could start???
Apologies for slight digression but related nonetheless :2twocents
 
I tend to agree with the experts (especially Marc Faber) on this. The Fed will stop QE2 as promised in June. They will then 'wait and see'. The market will probably not do anything that they like the look of, and employment will probably not improve. They will then probably initiate QE3.
This gives them the credibility of at least sticking to their word. The Fed has not said 'there will be no more future QE', only that the current run will end in June.
 
grandia3 said:
it is confirmed that it will end in June and that there will be no QE3 (unless I misread this source)
source:
http://au.finance.yahoo.com/news/Bond-yields-rise-after-cnnm-1562066145.html?x=0
Click to expand...

So what's everyone's thoughts as to what will happen come July when QE2 ends? Do you think the Fed will raise rates to test the economy and the dollar will start to rally? Or conversely a dollar decline but interest rates on hold? US treasuries will be on the decline too?
 
Neutral said:
So what's everyone's thoughts as to what will happen come July when QE2 ends? Do you think the Fed will raise rates to test the economy and the dollar will start to rally? Or conversely a dollar decline but interest rates on hold? US treasuries will be on the decline too?
Click to expand...


This overnight by the Fed...

The talks over the exit strategy don’t mean that tightening “would necessarily begin soon,” the report said. Policy makers agreed that the Fed’s securities portfolio, set to reach $2.6 trillion next month, would be shrunk “over the intermediate term” and return to “essentially only Treasury securities,” the minutes said.
Click to expand...
http://www.bloomberg.com/news/2011-...er-rates-before-asset-sales-minutes-show.html

The two statements I have bolded indicate to me that there will be NO imminent easing of stimulus by the US Fed after their nominal "deadline".

How long is an "intermediate term"? LOL.

Instead, stand by for another steaming Money $hot, hot 'n fresh from Bennie's Olde Buck$ Shoppe....

:cool:
 
What will interest us the most is, what will the effects be for the ASX?

1st scenario
with the QE2 ending, there will be a decrease in demand for the US bonds (that's what QE2 does), basic economic theory says that the price of the bonds will decline which rises the yield of these bonds,

risk hater Investors (really tempting to say the weak-hearted investors), will shift some of their investment from the stock market to the bond market, and that will cause a downward pressure on stock prices

what more is, the price of commodities (silver,gold) will most likely to decline as the effect of the strengthening yield of the bonds, putting more downward pressure to mining companies (remember we (AUS) are famous for our mining sector)

by observation (arguably), our ASX is somewhat positively related with the US market, thus our market will feel the downward pressure as well

2nd scenario
since everyone already know this news, adjustment has been done even after this event. Hence, nothing will happen and we can live happily ever after

Any corrections and opinions are welcomed :D
 
CORRECTION, I cant find the edit button, is there such thing?

in the scenario 2 it says
"adjustment has been done even AFTER this event"

it should say
"adjustment has been done even BEFORE this event"

thanks :D
 
grandia3 said:
CORRECTION, I cant find the edit button, is there such thing?
Click to expand...

Posts are able to be edited for 20 minutes after posting, so be sure to proofread them and ensure that they say exactly what you want them to.

After that 20 minute window of opportunity the "Edit Post" button disappears.
 
I don't think QE2 , Queen Elizabeth II death would have that much effect.

(Just kidding, good comments in thread)
 
Thanks Joe, I will be more careful next time

back to topic
As a good student, I will say that scenario #2 is likely to take place
adjustment is currently taking place since everyone knows about the news :)
 
Now people are beginning to reconsider that QE3 will take place
the Dow keeps falling and gold keeps raising
maybe we should start investing in hospital and psychotherapist business :p:
 

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