Monday, October 11, 2010

Great Comment by Rosie

As we read Tuesday’s USA Today (USA Yesterday?):

“A decision by the Bank of Japan to cut short-term interest rates to almost zero, and announce a plan to purchase risky assets such as government bonds, exchange traded funds and real estate investment trusts to stimulate its economy was also viewed as bullish. Investors hope other central banks follow Japan and the U.S. in taking creative steps to jump-start slow-growing economies and avoid deflation.”

I don’t know. I looked at the Graham-Dodd opus on fundamental investing and could not find a chapter on “hope” or “creative steps” by central banks as a reason to value the stock market. I guess I have to go back to school. Imagine that all these monetary authorities had to do was announce that they would buy as many assets as it would take to rejuvenate the cycle of leveraged spending back in late 2007 and we would have avoided the entire recession, bear market and credit collapse altogether. What a novel idea.

The fact the QE2 is being bandied about because we have an extremely fragile economy on our hands does not seem to resonate.

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