The Fed’s new bond-buying binge will create plenty of commodity speculation and kill the currencies in some emerging markets. IBD’s Jed Graham puts it thusly:
What’s different about quantitative easing — an effort to lower market interest rates by bidding up Treasury debt — is that the Fed has no ability to direct its fire. What’s likely is that much of the investment capital freed up by Fed purchases of Treasury debt will overshoot its target — the U.S. economy — and flow to emerging markets and especially into commodities that serve as a hedge against a falling dollar.
And economist David Rosenberg adds:
Meanwhile, risk assets from equities, to credit, to emerging markets have, in recent months, become correlated with a weaker U.S. dollar in an unprecedented fashion. A weaker dollar, in turn, fits in very well with Ben Bernanke’s reflationary strategy by cheapening exports and buying jobs from abroad, not to mention adding extra impetus to foreign-currency translated corporate earnings. The question is whether the dollar’s descent becomes destabilizing or what the responses to this overt weak dollar policy will be in other parts of the world. Currency wars tend to lead to trade wars and trade wars do not tend to end very well (gold being an exception). … The bite into discretionary spending from the spike in food and energy prices — at exactly the most important shopping time of the year.
I wonder if all this isn’t just an effort by the Fed to force the hand of the new Congress and Obama to boost the economy through fiscal policy.