The tortoise and the ECB
“While the philosophical merits of QE are questioned and debated, no one can doubt the results.” - By Harley Bassman, executive vice president and portfolio manager, PIMCO
Summary below by Anthony O'Brien
Investors may wonder how long the European Central Bank (ECB) will slumber after taking an early lead in the race to expand its balance sheet to facilitate growth across the eurozone – the world’s second-largest economy.
Bassman argues that it is curious that the ECB continues to sit on its hands while the US and Japanese economies move steadily ahead.
While not a certainty, it seems highly unlikely that the ECB will indefinitely allow its main trading partners to competitively devalue versus the euro. And since there is no reason to reinvent the wheel, Europe’s policymakers will likely unveil a familiar-looking and expansive QE policy designed to accelerate asset velocity and, in turn, reflate their equity market.
A sharp poke of QE “infinity” was enough to send the S&P up 45% through November 17. Similarly in Japan, the Abenomics version of QE “infinity” has sent the NKY up 70%.
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Frequently Asked Questions about this Article…
The European Central Bank (ECB) plays a crucial role in the eurozone economy by managing monetary policy, including interest rates and money supply, to facilitate growth and stability across the region.
The ECB's approach to quantitative easing (QE) is significant for investors because it can influence asset prices, currency values, and overall economic growth in the eurozone, impacting investment returns.
While the US and Japan have aggressively implemented QE policies to boost their economies, the ECB has been more cautious. However, it is expected that the ECB may adopt a similar expansive QE policy to remain competitive.
Quantitative easing has had a significant impact on the US and Japanese stock markets, with the S&P 500 rising 45% and the Nikkei 225 increasing 70% following their respective QE policies.
The ECB might consider a more aggressive QE policy to prevent competitive devaluation by its main trading partners and to stimulate growth and asset velocity in the eurozone.
The potential benefits of QE for the eurozone's equity market include increased asset prices, improved investor confidence, and accelerated economic growth, which can lead to higher returns for investors.
QE can influence currency values by increasing the money supply, which may lead to a weaker euro, making eurozone exports more competitive and potentially boosting economic growth.
Everyday investors should consider how the ECB's monetary policy, including QE, might affect inflation, interest rates, and asset prices, as these factors can significantly impact investment portfolios.
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