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Considering the strong start to the year for equities, Ben Bernanke’s smile must be getting as big as the Federal Reserve’s balance sheet. The Fed Chairman is on record defending the wealth effect, which involves forcing investors into equities by punishing them through record low interest rates and quantitative easing. After an early lackluster reception from the latest QE announcements, Mr. Market is feeling quite optimistic these days.
In September, the Federal Reserve announced QE3, which buys agency mortgage-backed securities at a pace of $40 billion per month. The program is open-ended and will continue for as long as the central bank thinks is necessary. Stocks enjoyed a modest bump from the news, but the gains were fully retraced by Halloween.
However, Bernanke quickly put on his Santa suit and delivered an early Christmas to Wall Street. Three months after announcing QE-to-infinity-and-beyond, the Federal Reserve unveiled QE4, which purchases $45 billion of long-term Treasury securities each month.
Stocks gain across the board…
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