I first wrote the article ‘Save Us Benny, Save Us’ back in April but it’s a good time to revisit it because we are already starting to hear the cries.
This will be the cry to Ben Bernanke as stock markets fall and the world’s economies returns to recession.
The end of QE2
It’s my expectation that the US Federal Reserve will end its second round of Quantitative Easing (known as QE2) on 30 June, something that will have serious implications for investors.
The Fed’s injection of $97 billion into the global banking system every month is the primary reason that prices of stocks and commodities continue to rise. Without this artificial stimulus stock markets will quickly reverse and the illusion of our global economic recovery will be shattered.
As the word ‘recession’ starts to replace ‘recovery’ in newspaper headlines there will be urgent cries for governments and central banks to ‘do something’. This will give ‘Helicopter Ben’ all the excuse he needs to fire-up the printing presses once more.
One last buying opportunity?
This deflationary episode may give investors an excellent buying opportunity since I expect all risk assets to selloff quite sharply.
It’s only been 36 days since the Fed ended its second $600 billion stimulus programme and already the markets have begun falling precipitously and there are calls for more stimuli.
As I see it, the question is not IF global central banks will intervene, but WHEN. Fortunately for those with cash available, this deflationary bout that will precede the next reflationary wave could provide some excellent buying opportunities.