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Fed Easing Even More Effective Than You Think?

QE2 (quantitative easing) apologists are already noting that QE2 might be more effective than many think.

Credit Suisse, for example, says QE2 will be more effective than investors realize because:

1) negative US real rates up to 7 years have made government funding arithmetic more favourable;

2) lower real yields have led to record housing affordability and a re-rating of assets;

3) the Fed is likely to buy proportionally more assets from non-banks than in QE1 and this directly helps through the funds flow effect.

QE3 coming — widely believed on the Street. Credit Suisse said the Fed is targeting inflation at 1.5 to 2 percent, which will require GDP growth of at least 4 percent over the next few years. They believe QE will be extended by $500 billion to $700 billion.

The BIG issue: is the long, 10-year bear market in stocks showing any sign of ending? Stifel Nicolaus thinks it might be, saying the period where commodities beating the S&P 500 (alternative investing is popular in secular bear markets) is ending.

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