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stock_creeper
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  • We Don't Need a QE3 Program [Edit or Delete]0 comments
    Jun 23, 2011 10:07 AM
    I suppose the main reason why stocks are lower is because Bernanke failed to knowledge the need for further quantitative easing. Maybe he's right. The economy is doing fine (in terms of profits & earnings) and yield on 'risk free' assets are essentially zero, providing an economic incentive to invest, not hoard money.
     
    1. short term yields have fallen from 4% to zero
    2. long term yields still remain near historic lows
    3. huge BRIC surpluses already function as a QE program by keeping yields low. China's trade surplus, for example, is used to buy treasuries.
    4. US economy is still booming Expecting yet another quarter of blowout earnings from tech, commodity,energy, industrial, and cyclical sectors. We haven't had a 'bad' earning season since 2008. Financials and home builders will remain weak, although this is not bearish for the overall economy.
    5. The fed knows it can't create jobs . Permanently low interest rates and record low corporate bond yields ( http://capital-flow-watch.net/wp-content/uploads/2006/09/Bond_Yield.gif ) apparently isn't enough to convince S&P 500 companies (which are sitting on $800 billion cash) to hire.
    6. Market downturns are temporary, fundamentals still rule. As stocks have fallen in recent months PE ratios continue to contract, a positive sign. It would be really bad, on the other hand, if PE ratios ROSE as stocks fell. Stocks will be at 52 week highs again soon enough.
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