An independent professional's take on the latest news and trends in global financial markets

Posts Tagged ‘Bernanke

Debt: still very much in favour

Reports by the Wall Street Journal that officials at the Federal Reserve are drawing up plans for starting to rein in the current programme of QE are worth noting. Jon Hilsenrath, the Journal reporter who wrote the story, is widely held to be the Fed’s favourite unofficial channel for making known its future intentions.  Could it be that even the Fed is starting to get concerned about the runaway effect that its monetary stimulus is having on asset prices? Throw in Mr Bernanke’s warnings about excessive risk-taking last week and it is tempting to suppose that even the Fed would be happy to see a pause in the the advance of risk assets, at least for now.

That would certainly seem to sit quite well with the normal midyear seasonal pullback that we have seen for each of the last three years. The worry with QE has always been that it is easy to get started on it, but very difficult to stop. Now that the Japanese have joined the QE party in an even more dramatic way, the ripples are being felt in financial markets all round the globe, compounding the scale of the eventual problem. Yields in a number of credit markets (eg junk bonds, leveraged loans) have fallen to what look like dangerously complacent levels. Companies such as Apple are obviously happy to take advantage of the ultra-low rates on corporate debt, but whether that achieves any longer term benefit remains to be seen – not so obvious when the purpose of the debt is committed to share repurchases rather than new capital investment. All the while a return to the levels of economic growth we witnessed before the crisis broke in 2008 remains stubbornly distant. Read the rest of this entry »