NEW YORK ( TheStreet) -- In response to a severe recession and worsening unemployment in 2009, the U.S. Federal Reserve embarked on its controversial program of bond purchases. However, the U.S. Federal Reserve electronically created new money out of thin air to make those bond purchases, weakening the value of the U.S. dollar for years and causing many to question the value of quantitative easing policies.
Fortunately or unfortunately, the U.S. Fed’s determination to depress bond yields made it more likely that money would flow into riskier assets like stocks and commodities. Even CD and savings account veterans were no longer able to play it completely safe; most had to consider higher-yielding corporate bonds, preferred shares or dividend stocks.
Like many decisions, the Fed’s first two iterations of quantitative easing (i.e., QE1, QE2) had unintended consequences. For one thing, as the Fed electronically printed dollars that hadn’t existed before, currencies around the developing world strengthened and inflation in those emerging markets quickened.
Secondly, and perhaps more notably, the ever-rising and unsustainable debt levels in Europe left the region’s central bank with a dangerous path to follow; that is, in one form of another, the European Central Bank would also try to bail its constituents out through unconventional easing measures and/or bond purchases.Indeed, we’ve already sneaked a peek at how the world intends to loosen credit and quiet stormy financial markets. Back on June 21, the Fed extended its purchasing of longer-dated bonds through “Operation Twist.” Not long after, in an early morning hour of July 5, the ECB and the People’s Bank of China simultaneously lowered benchmark borrowing costs; then the Bank of England raised the level of its own quantitative easing program. In other words, since June 21, every major central bank around the globe has demonstrated a willingness to risk severe inflation. Why? Apparently, there is widespread agreement that action/promises can avoid a global depression as well as civil unrest. Of course, it has been a while since central banks have done anything. And while ”risk-on” stock assets have held up nicely for many months, stock markets may lose patience in September and October. Similarly, Treasury bonds have been so oversubscribed, there may not be enough room for more helium in the balloon.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV