The FTSE 100 is now trading at a level not seen since before the volatility of the stomach - the turbulence of the fall of 2008. Furthermore, the Indian market hit a record after rising only 5MC last week. Gold is on a tear, and the oil price moves towards $90 per barrel. Little importance belonging to the resurgence of the animal spirits.
What was most fascinating on the reaction of the market in announces a $600bn (£ 370bn) injection of funds last week in the American economy, however, the timing of the fireworks.The initial response Wednesday afternoon has been relatively muted - as if investors were shrug their shoulders a measure which has been in accordance with well - leaked .the reaction Thursday expectations bang was of another order completely - an explosion of back-to-the-races of risk appetite.
Trigger key shift in the market was, I believe, an article from the Washington Post, in which the President of the Fed dropped a clear indication that future levels of quantitative easing will be determined by the State of the economy, but by the level of the stock exchange. This is the so-called "Bernanke presented", whereby investors believe that if the worst the worst helicopter that the Fed will simply drop a load more newly printed dollar bills to bail the.
I think that what the Fed is fraught with danger in the long term, but in the short term, it would be folly to stand in front of the giant monetary. It is human nature after the kind of collapse to leave as soon as you are out of the water, we have seen two years yet. But I think that it would be premature because for two main reasons QE2 is likely to be much more effective that Skeptics suggest.
The first is that other banks will probably follow lead the Fed in order to prevent their own currencies to appreciate a weakened dollar. Japan will not tolerate a much stronger yen and UK will probably follow suit at the beginning of next year that reductions in expenses and VAT hike began to bite. This means that developed world interest rates will remain low for many longer than expected.
The second reason is that ve really encourage spending. Credit Switzerland calculates only a reduction in point a percentage performance of obligations actual shoot by 20pc, which in turn increases the propensity to consumers who see their wealth increase in net assets prices. It also reduces the opportunity cost of consumption for the fifth richest citizens save one-third of their income and account for 40pc of all expenses.Meanwhile, rising property prices raise the guarantee against existing loans, which encourages banks to provide credit more.
So I think QE2 work probably exactly as intended to reserve Federal américaine.Quoi becoming a source of concern is shooting up printing consequences which are either non-intentional or simply a matter of indifference to the United States.Monomaniaque attention the fed to solve economic problems United States danger is that others will inevitably be caught between two feux.Par example, savings with secured dollar currencies are required to maintain monetary policy is totally inappropriate for their growth.When a cost money that was appropriate for the Germany has been imposed on other countries in the euro area clearly is a repetition of the era of the arrow on the outskirts of Europe.Secondly, a large part of this new currency will simply leaks in emerging markets in full essor.Cela will not end well.
But there is a difference between knowing that a situation was untenable and think it will change anytime bientôt.Il is far too early to speak of bubbles in most markets benefiting from export America easy money policy.
Speaking of irrational exuberance has started in the middle of 1990, years before the bubble stock she éclaté.Tant economic recovery continues, assessments remain reasonable and inflation starts to spin out of control, it would be wrong to hop off the coast of the revival of Bernanke express.Ne fight the Fed.
Tom Stevenson is a Director of Fidelity Investment Managers.Les investment opinions are own
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