Salient to Investors:
Steven Hansen at Econinterest writes:
- The positive reaction by the market to the FOMC minutes effectively disproves the theory that a withdrawal of QE is necessarily market negative. QE is not the only dynamic, or even the driving dynamic, in the market rally – other dynamics include inflows from foreigners escaping European financial investments.
- The correlation of QE and Treasuries is far from perfect, though removing a $80 billion buyer would generally cause yields on the entire bond market to rise.
- Since 2012 the Fed has been purchasing about half of all new Treasuries issued. To replace the current rate of QE Treasury purchases, $40 billion of new money monthly would be needed. USA households over the last 4 years have only contributed $20 billion per month to all financial assets including equities. So the vast majority of the $40 billion shortfall must come from the financial sector and foreigners, who appear to love treasuries.
- QE may now be a nearly worthless endeavor.
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