The past few years have seen mixed signals of recovery and slumps after the recession. In 2008 Bernanke released the first round of quantitative easing, QE1. Soon after QE2 was released. Now investors, analysts, and many others are wondering: is there going to be a QE3?
According to Paul Schatz, President of Heritage Capital, “it is not a question of if there will be a third round of quantitative easing, but when it will happen.”
“It is amazing but it seems that people are just going to invest when the Fed is going to stand behind and backstops them,” he continued.
Before everyone jumps on the band wagon and drops their worries, it should be known that Bernanke probably won’t make any moves until some more extreme dips in the stock market. Something much more extreme than the 4% dips that have recently been seen in some stocks.
According to Shatz, “By my math, which is based on the prior three rounds of easing, the S&P 500 would have to erase all of the year’s gains, or drop 10 to 12% before the Fed can be expected to act.” Shatz has been predicting that there will be a round 3, 4, and 5 of quantitative easing.
Shatz also mentioned that it is not just the Fed who is engaging in quantitative easing, but also the ECB (European Central Bank). It is looking like quantitative easing will run into “trillions and trillions” over the next couple years.
Overall, Shatz finished with this statement: “Four to eight percent pullbacks can and do occur at any time,” he went on calling them healthy, regular and something that should be bought, as long as the market has the QE-backing it so badly craves.
Overall it seems that the actual quantitative easing is not what is important, but the idea that it is there and ready to be used when, or if the time comes. This should help in reassuring investors during these less than amazing times.
Quantitative easing will probably be seen sometime in the not too distant future when growth really begins to slumps one can see that the recovery from the past recession has not been as incredible as those seen in the 80,s 90’s or that seen in 2001.