Equities rally with oil prices commodities and inflationary pressure and is equality necessarily fair?

If we look at the recent performance of world markets we can see that many equity markets have in effect shrugged off the impact of the political unrest in North Africa and Arabia. It would also appear that a rising oil price has not bothered them much either. Last night the US Dow Jones equity index closed up 93 points at 12,226. So we can see that the setback has been quite small particularly when we consider the strength of the recent rally since the end of November when the index was around 11,000. Another market which is putting in a very strong performance is the German Dax equity index which started its recent surge in late August 2010 when it dipped to 5833 briefly. Accordingly yesterday where the market closed up 87 points  at 7272 for a rally of  25% over this period. Happy days indeed for equity investors. The UK FTSE 100 has also rallied but has not been as strong with a close just below 6000 yesterday representing a rally of more like 15% over the same period since late August. In my opinion the recent underperformance represents a slightly more realistic view of our banking sector and its prospects as recent figures gave a small dose of reality.

The Oil Price

Of course oil company shares are likely to rise with the oil price but with the price of a barrel of Brent crude now settled (for a day or two anyway!) at around US $112 per barrel we can see that this compares with a price of US $95.05 as 2011 began so we are 17.8% up since then. If we look further back then oil prices too have been rising since late August when a low of US $72.10 per barrel was touched and we are now some 40 dollars or 55% higher.


As a commodity which often has to be bought oil has both inflationary and deflationary effects on the world. The inflationary effect is simple as its own price rise affects the cost of heating,lighting and transport which have cost impacts on virtually all homes and businesses. If you think about it then it is one of the price rises which is hardest to avoid which is one of the reasons why I place a much lower emphasis on core inflation measures than many others. As these core inflation measures exclude food and energy if you are wondering about this please see how far you can get today before you have to use one or the other!

The deflationary impact is more of a substitution one. If your finances are particularly tight but you need oil for example to heat your home then spending more on oil means that you have less to spend elsewhere. In the end all budgets are limited to some extent but many have some flexibility before this impact takes place. Accordingly it is not easy to predict but it is likely to be impacting in North Africa right now and there is of course an irony in unrest caused by rising food prices leading to rising oil prices making these individuals even poorer! Sometimes life and events seem very unfair.

Perhaps they seem even more unfair when we look again at the fact that many equity investors are doing well. This leads me to two thoughts. Firstly in the initial stages of an oil price rise equity markets can do well and indeed many are. Secondly we are back to my theme of a lack of investment diversity as over this phase oil prices and commodity prices and equity indices have risen together. Where is there any investment diversification there? For the early part of the period government bond markets fell at least giving us some diversification but recently some have rallied on a safe-haven trade so they currently are not helping either!

Commodity Prices rise again

Commodity prices have resumed their upward trend after a recent downward move. Last week  saw at one point a 10% fall in cotton prices and drops in the price of corn and wheat. However last night the Commodity Research Bureau spot index closed back towards it recent highs being up 3.92 at 565.78. For the poor struggling to feed themselves then there is more pressure from the foodstuffs sub-component which rose by just under 1% to 494.95.

Regular readers may not be surprised to learn that the S&P total return index which covers 24 commodities has outperformed world equity markets  (the corresponding S&P index covers 45 equity markets) for each of the last 3 months.

The European Central Bank faces yet more problems

We discovered yesterday that the European Central Bank had purchased an extra 369 million Euros of peripheral government debt. These were likely to be purchases of Portuguese government bonds back on the 18th of February. European taxpayers may well like to mull the implications of holding 77.5 billion Euros of largely loss-making assets and a central bank that if it were a listed bank would be suspended for insolvency.

Marginal Lending Facility

I have reported in recent days the fact that some Irish banks had been making use of this facility. The amount currently being borrowed has dropped slightly to 16.322 billion Euros but is still of significance. However today is an important day as the weekly Main Refinancing Operation (MRO) takes place. So yet again these banks will have the opportunity to borrow more cheaply than 1.75%.

The excuses for this borrowing are starting to wear thin to my mind. If you think about it the supposed shuffling of Irish banking deposits that underlies it could simply be agreed to take place at the end of the next MRO could it not? So the real question now is why has this not been done?After all the funds are only committed for one calendar week. We will find out more tomorrow when we see if the banks have shifted back to the cheaper weekly deal.

Manufacturing in the Euro zone

This morning has seen the publication of the purchasing managers index for manufacturing in February and the figures are strong with the number confirmed at 59 on a scale where a number above 50 indicates growth. So good news except for two main influences. The first links directly with the news on commodity prices reported above.

Input price inflation climbed to record rates in Germany, France, Italy, Spain, the Netherlands and Austria, reached a near-survey peak in Ireland and the fastest since July 2008 in Greece.


I will just give you the main points here as they are fairly self-explanatory.

Latest data from Markit showed that February progressed much as 2011 began, with manufacturing output, new orders and employment all falling sharply, and price pressures increasing


We are again seeing signs of a two-speed Europe or perhaps even worse a three-speed one. Whilst these are only survey results and therefore some caution is required they do reflect other data. As there are now signs of increasing inflation put yourself right now on the Governing Council of the European Central Bank. What level of interest-rates would you set for the seventeen nations of the Euro zone? My contention is that at this time there is not a correct interest-rate as the concept of one size fits all needs much more economic convergence than we are seeing. If you raise rates to prevent Germany over-heating you will be hurting Greece, Ireland and Portugal in particular and if you do not you may be letting inflation into her system. As the Alan Parsons Project put it “Damned if I do, damned if I don’t”

Crossing your fingers and hoping for the best is hardly a strategy at all…….

The UK economy sees manufacturing expand strongly

For many years there has been the complaint that we no longer manufacture enough. Some take the argument that we manufacture nothing at all which is plainly not true as it represents around 13% of our economy. Recently it has been showing signs of an improvement and the latest purchasing managers index figures for February show the trend is holding.

The seasonally adjusted Markit/CIPS UK Manufacturing PMI™ posted 61.5 in February, unchanged from January’s series record high. The PMI has now remained above the neutral 50.0 mark for nineteen successive months.

In itself this is good news and let us hope that we can carry on in this vein. Unfortunately it comes with a fly in the ointment and it is the same fly which has stopped many expansionary phases in the UK economy in the past.

Inflationary pressures remained elevated in the manufacturing sector during February. Rates of increase in output prices and input costs were near to their respective record highs.


The growth figures for manufacturing are pleasing even allowing for the fact that this is just a survey. We now have several indicators which disagree with the official economic growth figures as the monthly figures from the National Institute for Economic and Social Research on economic growth differ too. Of course there are bigger influences on our economy than manufacturing but I suspect this debate will run and run and the Office of National Statistics may yet be right but it is placing itself as an outlier when its credibility has been higher.

Looking further into the PMI figures I noticed that their input price figures track quite well with the input price figures used by the Office for National Statistics. I raise this point because the latest figure on an annualised basis is well above 20%. I hope that the Bank of England takes a look at these figures before its next vote on interest-rates which takes place next week.

Is Equality necessarily fair?

I hear on the news that the European Court of Justice has ruled that it will in future be illegal to charge different insurance rates on the grounds of gender. The two main markets affected with be car insurance where women are charged cheaper rates and annuities which are the way most people receive an income from their private pension where currently women receive lower annuity rates because they live longer.

So a question for readers is equality fair here? I will be interested in replies from both sexes. I am afraid that us men will just have to take God’s original unfairness that we live shorter lives on the chin as there is not much we can do about that!

Long-term contracts

I have argued before that we have a problem with long-term contracts and this ruling highlights the problem yet again. If we put to one side whether the ruling is correct look at what it does. There will be men about to retire who will receive a lower level of income from a pension annuity but that annuity could have been built up over 30/40 years on a set of rules and expectations that have now been changed as a result of this decision. There will be corresponding gains for some women. So much for trust and reliance in a system.

My point is that this is arbitrary and if you were thinking of a long-term savings contract now would you trust the future? Accordingly we can expect to see investors trusting long-term contracts less and less and that in my opinion to quote from 1066 and all that is “A Bad Thing”. I am afraid that policians talk on long-term contracts simply do not match their deeds although of course they have a pension based on a different system.


18 thoughts on “Equities rally with oil prices commodities and inflationary pressure and is equality necessarily fair?

  1. In the interests of equality, it seems both genders will end up ‘net’ in a worse position. Classic European thinking?

  2. Hi Shaun
    Not quite on topic, but relevant, I see Charlie Bean has been speaking on QE, liquidity lifeboats and all that jazz. Much pride in concluding, based on BoE research, that QE has reduced gilt rates by 100 bps, investment grade rates by c. 75 bps and non investment grade by even more ( well done, is it, for the public borrowing, FTSE big-boys and banks).

    Good news, one would have thought, until the end of his speech when he clearly indicates that QE is a jack that should be put back in its box –
    ” Third, while purchases of government debt may be a necessary resort at the zero lower bound, regular purchases during normal times may give rise to the suspicion that the central bank is doing so at the behest of government in order to lower the cost of budgetary finance, rather than for monetary policy purposes. Aside from giving rise to doubts about the central bank’s independence, it could also lead to higher inflation expectations and long-term nominal interest rates.”

    Not much detailed analysis of the much vaunted portfolio effect of QE money transmitting to higher risk returns which was to benefit the real ( as opposed to financial markets/commodities) UK economy.

    • Hi Shire
      He is not the only member of the MPC currently talking as they are being interviewed/grilled so I will deal with them tomorrow. I will however venture one point which is that they rarely mention QE at all these days and must therefore have forgotten what a successs they think it is,or rather they told us it was/is……

      However if it turns out to be true the story of Saudi tanks heading to Bahrain will have a bigger impact. The Saudi stockmarket has dropped 7% today whilst other markets hold their breath and hope it turns out to be a planned exercise.

  3. Equality – what a load of tosh. We are all made different. It’s meant to be that way. We are not the same and nothing can make us the same. Any system that tries to make us the same goes against the grain.

    As to long-term contracts, trust in pension rules etc. I decided ~14 years ago that it was time to take charge of my own financial future. The idea of locking down large chunks of money with no access to it seemed like a very high price to pay for the bribe of tax relief. I didn’t know squat then. I don’t know much now, but I had the courage of my convictions and kept control of assets. Very glad I did. Who knows what pension-related legislative changes will come into being in the next 10-20 years? Not only that, but I detest the notion of annuities. If I save my money for 30+ years, I want it all available when I retire. If I blow it, that’s my problem and I’ll have to earn money or be poor. Personal responsibility. We could do with a bit more of it these days.

    I think Western investors will be adopting an Asian approach for the next generation or two. (No trust in banks or government).

  4. Hi Shaun,

    Pensions are great – as long as you retire when gilt ylds are high and build up the fund during bull markets – put either a drop in int rates or a bear market (or 2) in the middle and you have todays problems.

    Shaun, in the CRB index theres a fairly consistent cycle of 10 year bull markets followed by 20 year bear (sideways to down) markets that’s trackable over the past 100+ years. At present that cycle is suggesting a topping this year – I like historical facts and stats, as one thing that will never change is that as long as humans are buying and selling they’ll continue to repeat the same mania’s and emotional decisions that traders in the past have gone through – anyway, Commodities especially the softs are hitting new highs, all of which have an impact upon food price inflation, now I’m not suggesting that the cycle is a fact or given, but it’s something to bear in mind as if it does transpire that prices do peak and reverse this year then it will be interesting to see the impact it has on official inflation numbers, in the months that follow.

    It would also be interesting to establish by just how much the UK manufacturing sector would need to grow by for the manufacturing figures to turn the economy around – I’ve no idea as I’ve not looked into – but I’m guessing a fairly large amount for the manufacturing sector to become the dominate sector for the calculation in UK GDP figs.

    US Non-Farm payrolls Friday – I can see Friday being a key day especially for the US markets.


  5. Hi Shaun, in reply to your question concerning “equality”, I also feel as others commenting on this issue that there are cases where there can be equality and cases where it it not possible; but the PC amongst us always want to force cases in every area which do not naturally fit, as if they could fit. One apple cannot equal one orange; the only commonality is the numerical quantity. One male cannot equal one female. There are many things which females can do adroitly which males cannot and never will be able to do; the key example is the ability to give birth to a new human being. Certain activists seem to want males and females to be identical in every way. That can never be so, and thus there can never be equality between males and females. They were made differently and are different. It is not about “fairness” but reality.

    I must also make two other observations:

    “We discovered yesterday that the European Central Bank had purchased an extra 369 million Euros of peripheral government debt.” I feel this is not so much about purchasing this debt, but rather what they used to “purchase” it! The reality of what real money is and what real wealth actually is continues to become more muddled; and this of course is no accident or oversight.

    “This morning has seen the publication of the purchasing managers index for manufacturing in February and the figures are strong with the number confirmed at 59 on a scale where a number above 50 indicates growth.” ..and… “For many years there has been the complaint that we no longer manufacture enough. Some take the argument that we manufacture nothing at all which is plainly not true as it represents around 13% of our economy. Recently it has been showing signs of an improvement and the latest purchasing managers index figures for February show the trend is holding.”

    The problem here is twofold. Firstly the PMI index does not actually represent “Manufacturing Output”, nor does it mirror it as is commonly assumed. It (as its title indicates) represents purchases made by certain enterprises. The other increasing difficulty is what is now the definition of “manufacturing”. This has been conveniently changed over the last 50 years or so, and, as with all other statistics which are re-indexed and manipulated for political purposes, thus no longer gives a meaningful indication of true “manufacturing” which may be used to objectively compare past and current performance. For example, some enterprise activities which were previously considered to be Services have now conveniently been moved into being considered as “Manufacturing”. Additionally some processing activities such as food processing, freezing and packaging have now been lumped into “Manufacturing”. Then you also have the growth of the Knock-Down Assembly shops, such as in passenger vehicles and computer products, which are now included within the category of “Manufacturing”. The latter and similar products have been already designed and assembled in another country to a point where little additional real “manufacturing” is necessary; the real purpose of such gambits is usually only to overcome tariff barriers and/or levied entry tax burdens. The work thus required in such is of a low skill level, and the profit and tax contribution to the UK economy is minimal. There are many other examples of such muddling in what is real manufacturing.

    Thus I feel, if any analysis of “Manufacturing”, its increase or decline in the UK or in any other economy, is to be meaningful and realistic it is necessary to carefully define what manufacturing actually is, and to drill down much further into the real facts. Any other attempt at analysing the UK’s true manufacturing position will be open to significant error in my opinion, particularly use only of PMI and ONS statistics in this arena.

  6. In answer to the posed question it’s not a question of fairness. It’s about risk. We are not allowing Insurance companies to correctly price the risk of writing the business. This is stupid. I don’t like the EU at the best of times and it winds me up that we have to listen to their nonsense.

    As to the question of fairness it’s a big blow against women, mostly. They get to pay more car insurance and their spouse probably gets a smaller pension which affects her whilst he’s alive and rather more when she outlives him as the widows pension one presumes will also be smaller.

  7. If it becomes illegal to discriminate on the basis of detailed factual statistics, we can presumably look forward to unisex sports events and women will have to play five sets at Wimbledon.
    On a more serious note, the next ruling will inevitably rule against discrimination on grounds of age. We will all then really get a hike if lumped in with young men.
    Although I agree that insurance companies may make more money out of this, what will happen to firms like Sheila’s wheels, which only insures women, or Saga, which only insures older people.

  8. If I had an ECB vote I’d raise rates.
    1) Portugal, Ireland and Greece are insolvent whether or not rates are raised.
    2) Interest rates for Portugal, Ireland and Greece bear little relation to the ECB base rate.
    3) Europe is worse off if the ECB allows inflation to hurt the core Euro countries.
    4 ) German voters are likely to strongly reject a system that causes them to suffer high inflation.

    Sadly the real ECB members have gold plated pensions. They may also benefit from future employment at banks selling bonds to the securities markets program. They are not acting in European taxpayers interests

  9. In my blog article …. Currency Traders Signal Another Stock Sell Off Is Imminent Just As Business Activity Reports Rise Strongly Higher And Short Selling Plummets To Lowest Level In Three years …. I relate a number of important concepts

    Economic production reports show that Ben Bernanke’s QE 1 and 2 have been very economically stimulative. Alex Kowalski of Bloomberg reports Business Activity in U.S. Grew at Fastest Pace in 20 Years. Businesses in the U.S. unexpectedly grew in February at the fastest pace in two decades, indicating manufacturing remains at the forefront of the recovery. The Institute for Supply Management Chicago Inc. said today its business barometer rose to 71.2 this month, the highest level since July 1988, from 68.8 in January. The Chicago group’s production gauge rose to 78.2 from January’s reading of 73.7. The gauge of new orders climbed to 75.9 from 75.7. The employment measure fell to 59.8 from 64.1 the prior month.Posted by Prieur du Plessis reports Eurozone PMIs: up, up and away! And Bespoke Investment Group Blog reports Chicago PMI Shoots the Lights Out.

    As quantitative easing has continued in duration and accumulated in amount, the central bank’s seigniorage, which is based upon both distressed securities, FAGIX, acquired via the Fed’s TARP and other Facilities, and held at the Federal Reserve, together with the US Treasuries, EDV, and TLT, held in Excess Reserve, finally started to exhaust on February 11, 2011, as some investors sold stocks, and bought bonds, BND, right through yesterday February 28, 2011.

    The exhaustion of The Central Bank’s seigniorage came on February 22, 2011, as is seen in distressed securities, FAGIX, failing to rise higher, which decreased demand for stocks, ACWI.

    The rise in stocks on February 28, 2011 manifested as a short selling opportunity.

    The chart of the transportation shares, IYT, communicates they are damaged beyond repair and that they will not be available to help drive the market higher; and as a result the stock market will be turning lower. Confirmation comes from the three black crows in Genesee and Wyoming Railroad, GWR as well as the topping out in Air Transport Services Group, ATSG.

    Inflation Destruction is now making its first appearance. Urban Dictionary relates Inflation Destruction is the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies.

    Ben Bernanke’s quantitative easing has exhausted, as is seen in its seigniorage of distressed securities, FAGIX, turning lower. The failure of Quantitative Easing is seen in that a bear stock market commenced February 22, 2011 with a number of sectors such as Solar, KWT, leading the charge lower.

    The rise in world stocks, ACWI, the S&P, SPY, the Dow, DIA, the New York Composite, NYC, on February 28, 2011 was a short selling opportunity as one sells into strength in a bear market and buys into weakness in a bull market.

    And finally I really enjoyed presenting that Bruno Waterfield in the Telegraph article Ireland’s New Government On A Collision Course With EU reports: “Enda Kenny, Fine Gael’s leader, will later on Sunday, start to form a new government, almost certainly with Labour, after full election results under Ireland’s complicated PR system come through.”

    “Both Mr Kenny and Eamonn Gilmore, Labour’s leader, have promised Irish voters that they will renegotiate the EU-IMF austerity programme to reduce the burden for taxpayers and to force financial investors to shoulder some of the bank debts currently paid out of the public purse.”
    “At a summit of centre-right EU leaders in Helsinki next Friday, Mr Kenny will use his position as Ireland’s new Prime Minister to beg the German Chancellor, Angela Merkel, and French President, Nicolas Sarkozy, for concessions ahead of an emergency March 11 Brussels summit to restructure the euro zone.”

    “But neither the two European leaders nor the European Central Bank or EU will permit any substantial changes, despite the huge popular Irish revolt against the bailout.”

    “Chancellor Merkel will tell Mr Kenny that if he wants to reduce the high, punitive 5.8 per cent interest rate charged on EU loans then Ireland will have to give up its low corporate tax rates – a measure regarded as vital to Ireland’s recovery and one of the few economic policies it has not yet handed over to Brussels or Frankfurt.”

    Could Mrs Merkel arise to be The Sovereign? Perhaps so. Team Europe relates that European federalist Romano Prodi, EU Commission President said on October 13, 1999: “We must now face the difficult task of moving towards a single economy, a single political entity .. For the first time since the fall of the Roman Empire we have the opportunity to unite Europe.”

    Out of a soon coming economic and investment flameout, a political and economic unified Europe, a United States of Europe, will soon be a reality, as a Chancellor, that is a Sovereign, and a Banker, that is a Seignior, will arise to establish a new seigniorage with austerity for all.

    Their rule will be fair, in that all get the same autocratic treatment; yes democratic deficit for everyone. It will very much be a revived Roman Empire, in as much as the German people, an many others are descendants of those living in the previous world wide Roman Empire, and in as much as two European leaders Angela Merkel and Jean-Claude have received the highly valued Charlemagne Prize.

  10. Hi Shaun

    The Male/Female equality ruling is just a small part of the ‘Euro Mad-Hatters Tea Party’ that we all live at present. For someone who grew up in the affluent 50’s, I am becoming more dismayed at the steep decline of accepted understanding and professional practices that were established and acknowledged by the last 2 generations.

    Many of the products that this ruling affects are choices made by individuals that endure for a great deal of their adult life such as Private Pensions/Life Insurance. I wonder how many private pension pots can come anywhere near the payouts of company pensions.

    The way I understand the Insurance industry, it is founded on ‘Risk & Reward’, they are able to assess their risk and offer security based on data that they have gathered over many decades. I remember reading a US life insurer quoting premiums based on male/female facts collected over 85 years and would predict how many years less life expectancy was related to blood pressure readings. So with the Gender ruling they have just lost a valuable fine tuning tool to do do their business and premiums must surely rise to cover the extra risks.

    Who will suffer next? maybe bookmakers won’t be allowed to discriminate the horses by offering different odds.

    Ali Baba’s Common Market springs to mind.

  11. Shaun, it’s interesting to hear of the gender ruling. 
     I wonder if a 60 year old male will be able to complain about ageism when his 70 year old friend is offered a higher annuity.

    • Hi Matt and welcome to my part of the blogosphere.

      Also the 20 year old boy racer and the 50 year old experienced driver? One you stop the use of things like claims history and underwriting where does it stop? As someone who has experience in dealing with annuities I also wonder about the enhanced ones for those with particular illnesses..

  12. via Bruce Krasting:

    Senator Shelby asked Bernanke to explain how he came to the $600b QE2 program. The answer came at minute 32 of this C-SPAN clip. Ben explained that he felt that a monetary ease equivalent to a 75 BP reduction in the Fed Funds rate was in order to avoid deflation. He equated $150-200 billion of QE as being equivalent to a 25BP reduction in short term rates. The justification for QE all along has been that monetary policy is range bound by zero interest rates. QE brings us below “0” in equivalent policy.

    The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2)

    That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers.


  13. Don’t forget the higher rates 4 artists on car insurance; anytime now that’ll go. Thank god I don’t drive. A horse and cart might be an idea 4 strapped businesses; oats are still pretty cheap. Seriously this EU nonsense has got 2 stop & all the irish I talk 2 @ the airport where I work want out of the EU, they’ve simply had enough!

  14. Jeez, you stuffed alot in to that post.

    I’ve followed Calculated Risk for a few years and find his most consistent point is that historically the Fed only begins raising the funds rate 12 months after unemployment has peaked. Are we seeing the peak now?

    Here’s his latest post on fund rate possibilities:


    My crude assumption is that the BoE will remain in lock step with the Fed, give or take a quarter. Mind you, I did watch an interview with a Fed member during the summer, when he said the BoE had overdone loose policy.

    I’m grateful for the blog – the best UK private contribution on this unfolding disaster, and I’m wondering how I didn’t come across it earlier.

    You could split a post like this in to several parts and keep the audience coming. Maybe shorter paragraphs too.

    I’ll shut up now. Off to count my inflation linked pension.

    Yours Sincerely,

    A Member of the MPC.

    • Hi Stephen
      Thanks for the thoughts. I have been looking at post size and presentation on this blog and some of the readers here have offered help.

      I have been making a conscious effort to reduce post size and have cut it by 10% or so from the peak. However it is a continual battle as so much is going on and I have quite a few themes which develop…. I guess that is the flaw of having views! I start typing and out they come.

      As to the idea of several posts rather than one or keeping a post to one subject I would be interested in other readers views.

      Meanwhile back to the economics… The floater is the European Central Bank as it could yet go first. The banker (sorry) is the Bank of England which will be held back in the short-term I think by the official GDP figures showing a 0.6% decline but has a building minority wanting a rise now. In the history of the MPC (1997-) they have often been heavily influenced by GDP numbers and so that may (incorrectly in my view) stay their hand until the summer.

      As for the Fed. my view of Ben Bernanke’s speech is that QE3 is currently more likely than an interest-rate rise and that if his speech to Congress was any guide then I think Calculated Risks estimate is a minimum. The danger for the US is that inflation picks up like it has in the UK and it ends up in the same dilemma…

      In my opinion as the size of the QE experiment gets larger then the more difficult it is to raise official interest-rates. So QE2 and if it happens QE3 push an official interest-rate rise further forwards in time but there are few people apart from me who think of exit strategies so that debate is yet to come.

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