This article just made it to the front page of yahoo finance and I just had to laugh about whats going to happen when QE2 ends, reason is because it seems the rise in equities had nothing to do with any recovery, it was all based off of QE2. So after QE2 is finished and rates start to rise and everyone starts to worry about what will prop up equities, well thats when Bubble ben bernanke comes out with QE3, I mean what else is he going to do to keep interest rates artificially low and equities propped up along with skyrocketing commodities? Of course janet yellen has already said that the ending of QE2 is already priced into the market, hahah, good one janet, good one.....Anyway the chances of QE2 being extended is at least a 70% chance in my opinion, Bubble ben bernanke will not want to see any problems in the financial markets so he will listen and push the extension of QE2 through or possibly just call it QE3! End of QE2 has some investors fearing fall in June The Federal Reserve's bond buying ends in June. How will investors react? ap Matthew Craft, AP Business Writer, On Sunday April 17, 2011, 2:33 pm NEW YORK (AP) -- Could the financial markets be heading for a June swoon? The answer likely hinges on what happens after the Federal Reserve's $600 billion effort to boost the economy expires. Some investors warn that the end of the program, known as QE2, will upend the stock market and push other markets in unexpected directions. Under QE2, the Fed buys Treasurys from investors who can then put the money in stocks and other investments. Economists call it quantitative easing, and it is the second time the Fed has used the tactic. Since last August, when Fed Chairman Ben Bernanke outlined the plan, the Standard & Poor's 500 index has gained 26 percent. Many also say it's partly to blame for rising commodity prices on everything from silver to cotton. "It's the most important factor that explains markets the way they are now," says David Rolley, co-head of global fixed income at the fund manager Loomis Sayles. "So the most important question is what happens when QE2 stops?" Ask investors and you get a variety of opinions. Bill Gross, manager of the world's largest mutual fund at Pimco, fears the worst. Take away the largest buyer of Treasurys and, he says, their prices are likely to fall and long-term interest rates likely to rise. That could hurt the economic recovery, and it's one reason his fund has dropped nearly all of its Treasury debt. Other investors and economists, including those at Goldman Sachs, believe QE2 will expire without a stir. A top Fed official agrees. "I wouldn't expect to see a financial market reaction to the termination of that program," said Janet Yellen, vice chair of the Fed's Board of Governors, in a speech in New York. She said that investors have already priced in the end of QE2. Skeptics point to last April when a Fed program to buy mortgage bonds ended. A report by David Rosenberg, chief economist at Gluskin Sheff, outlined what happened between April 23 and August 27: --The Standard & Poor's 500 index lost 153 points, or 13 percent. --The yield on the 10-year Treasury sank from 3.84 percent to 2.66 percent, as fears over a double-dip recession sent investors into safer investments. --Gold rose from $1,140 an ounce to $1,235. "Sure, there's the possibility that the economy can stand on its own two feet now," Rosenberg says. "But we haven't seen that happen yet." Another risk? Many investors believe the Fed will extend QE2, despite signs the economy is strengthening. Thirty percent of the 70 economists and money managers surveyed by CNBC in March expect the Fed to keep buying. Failure to do so could sour investors on the stock market. Many investors have become addicted to the Fed's help, says Robert Arnott, chairman of Research Affiliates, a money management firm. "Most expect it to be over but secretly hope it won't," he says. "There's a whole lot of wishful thinking out there." Complicating everything is the debate over raising the federal borrowing limit. Treasury Secretary Timothy Geithner recently said the government may hit the $14.25 trillion debt ceiling as soon as May 16. If Congress fails to raise the limit, the government will lose the ability to sell new bonds to pay off debts coming due. In the worst-case scenario, the government could default, leading to a financial crisis. "All hell breaks lose," Arnott says. To be sure, the economy is more stable than last year. Unemployment has dropped from 9.8 percent to 8.8 percent in four months. Consumer spending has increased for eight months. Fed officials have turned their attention to rising food and fuel prices. Many see the end of Fed support as a badge of good health. "We have to take the training wheels off at some point," says Richard Skaggs, equity strategist at Loomis Sayles. He dismisses Rosenberg's argument that stocks could fall and bonds could rise in a repeat performance of 2010. "The past doesn't really repeat itself," Skaggs says. Earlier this year, Skaggs was worried that the Fed's bond-buying was causing stocks to rise too quickly, setting the stage for a fall in June. But stocks dropped in March in response to the earthquake in Japan's earthquake, rising oil prices and other world events. Now Skaggs believes markets rest on more stable ground. When the Fed wraps up its program, the economy and financial markets may wind up better off if it means oil, wheat and other commodity prices drop. "I've gone from being nervous to having my fingers crossed," he says.
"... fund manager Loomis Sayles. "So the most important question is what happens when QE2 stops?" That is the 14.25 trillion dollar question!
Of course it will, why take away what the market needs to keep its momentum going, its all artificial growth, thats all stimulus is! Fed seen signaling no rush for the exit reuters U.S. Federal Reserve Chairman Ben Bernanke addresses the Independent Community Bankers of America's (ICBA) 2011 National Convention in San Diego, California March 23, 2011. REUTERS/Mike Blake On Tuesday April 26, 2011, 3:22 pm By Mark Felsenthal WASHINGTON (Reuters) - The Federal Reserve kicked off a two-day meeting on Tuesday that will probably show that it is in no hurry to scale back its massive support for the economic recovery. The central bank is expected to confirm that it will complete its $600 billion bond-buying program by the end of June and renew its commitment to maintain rock-bottom borrowing costs for "an extended period." Investors are now waiting to hear what the Fed will do after June. Signs from policymakers so far have mostly suggested it will wait and see how the fragile U.S. economic recovery develops before tightening monetary conditions. The Fed is expected to release its post-meeting statement at 12:30 p.m. ET on Wednesday. Chairman Ben Bernanke will then hold the first-ever regularly scheduled news conference by a Fed chief at 2:15 p.m. ET. It is expected to last about 45 minutes. "Investors are unlikely to learn from Bernanke when the Fed will tighten as it is doubtful that he himself knows," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. The Fed launched the latest bond-buying program in November last year to support a flagging recovery, having already cut interest rates to near zero in December 2008 and bought $1.4 trillion in longer-term securities to pull the economy out of recession. Fed officials say their efforts have helped buoy growth and point to faster hiring by businesses as well as stock market gains. However, the program has drawn criticism from some U.S. lawmakers and from emerging economies such as China and Brazil who blame it for fueling inflation. Financial markets anticipate the central bank will be in no rush to tighten financial conditions because the jobless rate stood at 8.8 percent in March. Furthermore economic growth in the first three months of the year is expected to have slowed to an annualized 2.0 percent or lower. Data on first-quarter growth is due on Thursday. Expectations that Fed will not raise interest rates until sometime next year have pushed down the value of the U.S. dollar which hit a 16-month low against the euro on Tuesday. The European Central Bank raised its benchmark rate earlier this month, its first hike since the financial crisis struck. U.S. government bond prices rose on Tuesday as traders judged inflation was not yet troubling enough to push the Fed to raise rates and bet other buyers would fill the void once the central bank's buying ends. As well as its inaugural news conference, the Fed will make another change to make itself more transparent by issuing quarterly forecasts for growth, employment, and inflation as the news conference begins. Until now, the forecasts were released only three weeks after each meeting along with minutes of the discussions. Economists will look to see whether the Fed has bumped up its inflation forecasts, which could be a sign it is growing a bit more nervous that high oil costs are pushing up prices for a wider array of goods and services.
For a problem that weighs $14 trillion the fix is going to have to be long term. Immediate results are impossible.
The markets have become addicted to crack. When the crack is removed the withdrawal is going to be painful.