Fed Announces QE - Initial Thoughts
Much to my surprise, and against what seemed logical, Bernanke launched an open ended mortgage backed securities bond buying program for $40 billion a month "until employment begins to show recovery." On the back of that news the equities markets have rallied sharply but also the inflationary concerns as bonds are being sold off pushing yields higher.
Here is the problem. While asset prices are rising, and we need to further increase equity exposure, so are the inflationary pressures that impact the consumer. Rising interest rates will impact the nascent housing recovery and reduced demand, combined with a lack of fiscal policy, will likely keep employment weak.
I am going to discuss this more on CNBC here at 2pm. However, it is clearly evident that, at least for the moment, we need to increase exposure in portfolios. However, the question is still deteriorating earnings, revenues, and economic data as we move forward. The Fed is likely inducing the next major asset bubble that will end badly for investors, however, it could be quite a while before that happens.
More to come when I return.