Wells Fargo says the second round of QE is already failing. They believe rates have rebounded following the overreaction to QE and are likely to normalize and continue lower once the market realizes that QE is in no way inflationary. I fully agree:
“The Fed’s first round of quantitative easing did a remarkably good job of arresting the slide in the housing market in early 2009. Mortgage rates fell dramatically, leading to a refinancing boom and helping bring buyers back into the market once the first-time homebuyer tax credits were put in place. Unfortunately, Act Two is not going so well. The Fed’s plans for a second round of quantitative easing were greeted with an unusual amount of criticism from policymakers overseas and in the United States. Long-term bond yields have surged since the Fed announced the details of its bond-buying program and the spread between mortgages and the 10-year Treasury note has widened to over 170 bps. This is not what the Fed intended to happen and we believe rates will eventually decline once critics realize quantitative easing poses little risks to near and intermediate-term inflation prospects.”
Source: Wells Fargo
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.