Buying of $600 billion worth of bond will create lot of moneys in market. Now how Fed is going to control these moneys ? Where these moneys will be going ?
Fed purchased $1.7 trillion of assets in past now they are buying $600 billion treasuries. Now through this buying they must have an aim of making their economy stronger. But the situations in
is different now, banks are not giving any loan to those persons who has no job or homes e.t.c. Situation in Housing market is still critical where some of the mortgage payments due are more than the market price of the houses. So certainly these moneys will not be going to housing market which is in deep water. Not only Housing market but many banks & business still are in risk. So unless the picture becomes completely clear I don’t think these moneys are choosing those paths. U.S.
First I want to know who are going to make profit through this treasury purchase ?
Though I don’t have the required data but I am sure some big
banks are making profit from this treasury purchase, whether directly or indirectly. Goldman sac, JP Morgan. BoA, City and Morgan Stanley these 5 banks have generated $93.7 billion in first 9 months from advisory, debt & equity underwriting and from trading of stocks and bonds. Some where I was reading that trading through fixed-income accounted more than 60% of the total investment-banking and trading revenue in the first 9 months of this year. These banks already made huge income when bond prices were in highs. Trading and investment banking accounts 60% - 75% for some banks. Some of these banks are hugely invested in Emerging markets and attach with different types of advisory and other investment banking works. Their works are closely related with Emerging market stock market. U.S.
Though I am not an economist but I have a gut feeling that these moneys are going to come in Emerging markets whether through the hands of these banks or through other ways. Now who will bring these moneys is not important the main thing is, they are going to invest it in Emerging markets whether in stock markets for trading purposes or in other areas.
If these moneys are going to come in Emerging markets, I don’t think every country is going to welcome it. Because these moneys are going to cause their currencies to appreciate more and that may create an asset bubbles. So these countries will react, they will intervene. They may put taxes on these flows and many other types of interventions.
I have already wrote in one of my previous writing that how countries like
Brazil , is reacting. South Korea
Now if we consider Emerging market’s position without this Treasury purchase we can see that moneys are already shifting in these countries. Let consider India, some banks of
are or already have issued offshore bonds. Let consider State Bank of India which has issued 750 million Euro-bond, the largest ever Euro dominated bond from an Indian borrower. There are lot of other instances like ICICI bank, Union bank i.e. One thing to look, that these issues are subscribing like a hot cake. India
Look like world is still believing in Emerging market growth story than other develop countries. But I think biggest constrain for emerging markets like
China, India, and others are inflation. Now how they deal with more increase of money supply is a matter to be look in. Fed’s treasury purchase announcement must be dealing with a time period. So it is up to everyone of us to decide what to do and what is coming. Russia
If these moneys are coming for stock markets then we are going to see a huge jump in coming days. But time will say how much the market will correct before that or the game just have started.
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