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How important will be the QE-3 ? Is it really necessary for markets ?

Financial world is quite anxious about QE-3 and sometimes it looks like, whole financial world will be not there if there is no QE-3 ! At past I was going with the flow but later some things were not cleared to me. So I made a brief comparison between the financial Assets. For the purpose of comparison I take an approximate time frame of QE-2 so it may not be in exact figures. It is true that these figures can be more if markets especially market for Risky Assets have not corrected like what is going on during last few weeks.

Stock Index & Commodities
1st Sep-10
31st Aug-11

Dow Jones
Shanghai Composite
S. AFRICA  (All Share)
Crude (Nymex)
10-Year Treasury Yield

I am in same opinion with many experts that Commodity markets were very much benefited from this QE-2, though things are not same for Natural Gas but it has corrected recently, so it is not something that has disappointed investors. On the other side 10-Year Treasury Yield fall more than 10%, that means value rose in this period, so it was good for investors. Now, is not it great that Commodity and Treasury market performed identically ?  But when I see the Stock Indexes, though it was mixed but it is clear that Developed markets have suffered less than some of the Emerging markets like China, India and Brazil.

I am a stock trader and I want to see stock markets are behaving better than others but I was disappointed like others with the performance of these stock indexes. Now definitely it can be due to the QE-2, because money flows went in those Commodity markets and who knows may be in Stock Markets of Developed countries !
Stock markets are the Barometer of the Economy, if it is true then those countries which are in trouble, their Stock Index must reflect that. But are they performing like that ?   No, definitely not.  What we are seeing now, a global sell of, not connected with any particular market. So look like Stock Indexes of those trouble counties were and are working on leverage !   we can now guess where from this leverage came. Though it will be a matter to see how these Stock Indexes have performed in long-run, later I will try to cover this matter in a separate post.

Now, is this QE-3 really necessary for US ?    

It is definitely a complicated subject. But I don’t think it will matter much to US authorities if liquidity remains their in the system, irrespective of the fact where from it comes. Countries like China and Japan are going to invest in these US Treasury market due their own interest and don’t look like they are going to stop the flow in future.
It is sure that these price hikes in these Commodities are one of the main cause for inflation around the world, especially in Emerging Economies. So to control their economy, countries have hiked their interest rate, but I don’t think they have yet able to control this inflation fever. In this situation if next QE-3 program comes, will not again history repeats itself ?   Yes, definitely there is a chance. 
So if new Quantitative Easing program comes and these Emerging countries hike their interest rate again what will be the situation !  Will the liquidity (the US authorities want to see in their economy) be their in US economy ! or it will flow in this Emerging Nations !  Because already interest rate in these Emerging Nations are too much and if they raise it more, then everyone will try to take these opportunities. Definitely it will not create a comfortable environment for US authorities.  So, what they are going to do ?

What I think that September’s Fed meeting is very crucial, but it is sure they are seriously thinking about a back-up plan ?  So in this circumstance everyone is thinking about a balance approach, may be a joint plan. I am not referring Democrats & Republicans as ‘everyone’, but I am talking about US & their competitors like China …………..

If I have to choose between Yes & No, I will go with the second one.

NOTE :  Please see the disclaimer of this blog .


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