tag:blogger.com,1999:blog-5925072257142622669.post2666541614992807112..comments2023-06-16T02:19:49.940-07:00Comments on Vitus Commentary: Vitus Update - Happy New Year 2011 (The Vitus Newsletter)ibillnhttp://www.blogger.com/profile/12393569935967702940noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5925072257142622669.post-71963026706939807542010-12-31T08:45:48.135-08:002010-12-31T08:45:48.135-08:00Could not find prev. mentioned ref on interest rat...Could not find prev. mentioned ref on interest rates. Will look more. <br /><br />For now, more on wealth effect: "Stocks are products of two inputs. They need lower interest rates, which allows the equity risk premium to be higher. Lower rates are here for a long while. In addition, stocks need the corporate ability to finance at those low interest rates. Both are in place and will be sustained for an “extended period.” Stocks also need high productivity and low labor-cost pressure. Both are in place." David Kotok, http://goo.gl/19buoibillnhttps://www.blogger.com/profile/12393569935967702940noreply@blogger.comtag:blogger.com,1999:blog-5925072257142622669.post-76152238858518293572010-12-30T19:42:43.552-08:002010-12-30T19:42:43.552-08:00Two quick points. More later.
- The action was no...Two quick points. More later.<br />- The action was not supposed to depress <i>Treasury</i> rates, it was supposed to depress real rates. This has happened. I have a link supporting this squirreled away somewhere; I'll supply here later.<br />- The wealth effect is basically the right answer IMO. The market is up! There are any number of people who attribute this to QE2. Grantham makes the case very solidly at http://goo.gl/MacA6 (supplied in the above post). He of course sees a lot of downside to the QE2 way of doing things, but acknowledges the necessity of doing it. I have some other refs which I'll also supply if I can find 'em. Thanks...<br />Billibillnhttps://www.blogger.com/profile/12393569935967702940noreply@blogger.comtag:blogger.com,1999:blog-5925072257142622669.post-50220200846150595642010-12-30T14:12:27.483-08:002010-12-30T14:12:27.483-08:00I have a question. What is the mechanism of transm...I have a question. What is the mechanism of transmission of QE2 into higher share prices? It seems important to understand what that mechanism is, because when it can no longer be sustained or the FED decides to turn it off, the markets may change. I hear two explanations. One is that QE2 depresses (or was supposed to depress) short term Treasury rates. But that did not happen: treasury rates went up. The other explanation is that a speech by the FOMC chairman in which he said that QE2 is supposed to work by the wealth effect somehow triggered the stock buying rally – that does make much sense, does it.nicknoreply@blogger.com