In order to further boost US Economy, the vast majority of Analysts expect an announcement on Quantitative Easing (QE) at the US Fed's policy meeting in November.
QE2 in November is all but certain. The only issue is the details of its implementation. The forecasts show that the next round of asset purchases would be c.$500 billion. Estimates ranged from $500 billion to $1.25 trillion (source Reuters).
Mr. Beranake needs this cash to filter into the private sector. This is expected to create jobs in the US.
Well most investors are probably happy to see another round of QE. Why? The stocks may benefit. But BE CAREFUL. Not all sectors are going to reap advantages. How can it happen when economic uncertainties prevail in many sectors. But there is one sector that could still benefit - even if the QE plan fails.
Years of cheap credit and reckless spending by US governments has taken the toll. Pumping more cash into the US economy and hope that things will improve is a doubtful idea. If the economy wants to sustain genuine growth , then the unviable businesses should be closed while US should become more competitive to China
Unfortunately, it appears that the US government wants an easy route. They try to the avoid the pain of economic adjustments with second round of QE.
May be Bernanke is right. The Governor of the Fed studied the 1929 US depression – when the dollar was pegged to gold. Because of this peg, the Fed in 1920s couldn’t just print dollars to counter deflation.
But it is quite different in 2010. Now Mr Bernanke can create all the cash or dollars. He hopes this will work miracles and will get the US out of economic trouble – be it deflation or not. Following are some of the thoughts on QE in November:
1) It may set off some inflation. Commodities should provide an inflation hedge. Invest in commodities.
2) US dollar could depreciate. This is good for commodities. But other export oriented nations could devalue their currencies against USD to keep their competitiveness.
3) QE funds channels into the emerging markets creating some growth in the developing economies. This will also result in more demand for commodities. Commodities should benefit.
If commodities do well, then mining sector should do well.
Do you want to know more about the mining stocks that could gain? Google is selectively placing advertisements in the blog related to this topic. You may click one of them and try your luck at your own risk.
The above content is for information purposes only and not intended to be relied upon for investment decisions. Appropriate independent advice should be obtained before making any such decision. Investing is risky and can lose money. Always seek expert advice before investing.
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