Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Is the Winner of the U.S. Presidential Election - 31st Oct 20
Gold and Silver Prepare For Another Price Advance - 31st Oct 20
Gold Is Likely to Win This Election - 31st Oct 20
Why Trump Can Still Win 2020 Election - Establishment Mainstream Media Wrong Again? - 31st Oct 20
Why Budgies Need their Own Feeders - Parakeets Feeding UK - 31st Oct 20
Can Trump Still Win? US Presidential Election Forecast Matrix 2020 - 30th Oct 20
Why a Biden Win will Keep Metals Prices Rocking - 30th Oct 20
Is Silver the Next Bitcoin? - 30th Oct 20
A New World Monetary Order Is Coming - 30th Oct 20
Do These Explanations Make Sense for This Intraday Stock Market Turn - 30th Oct 20
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

QE2 Sends U.S. Interest Rates Higher

Interest-Rates / US Interest Rates Oct 29, 2010 - 07:57 AM GMT

By: Mike_Larson


Best Financial Markets Analysis ArticleSo if the latest reporting is to be believed, QE2 is a fait accompli.

The Wall Street Journal on Wednesday said the Federal Reserve plans to purchase “a few hundred billion dollars” worth of Treasuries over a period of “several months.” The Fed will stick largely with Treasury notes, rather than bills or bonds, with the lion’s share of the buying focused on securities with maturities between two and ten years.

The Fed’s goal? According to the Journal, “to drive up the prices of long-term bonds, which in turn would push down long-term interest rates.”

Here’s the thing, though. Maybe I’m the only one with an Internet connection or an eSignal data feed. But it sure doesn’t look to me like long-term yields are FALLING. Instead, they’ve been RISING — sharply and swiftly.

Take a look at this chart of the 30-year Treasury Bond yield. It has shot up from 3.46 percent in late-August to 4.06 percent earlier this week. That’s a 60-basis point rise in only two months! Long bond futures have shed seven full points in price during that time.

chart QE2 Sends Interest Rates Up. Yes, Up!

In plain English, the bond market is telling Ben Bernanke to take a hike!

Why QE2 Is Having Precisely the OPPOSITE Effect It’s Supposed To

There are a lot of reasons why I think QE2 is a dumb idea. It’s the wrong medicine for what ails the U.S. economy. It’s untested and risky. And most importantly, if QE1 failed to reinflate the specific markets it was targeted at — housing and mortgages — why the heck does anybody think a smaller, less focused QE2 effort will work?

But the recent market action proves things are even WORSE than I feared …

QE2 isn’t just failing to drive rates down. It’s actually doing precisely the OPPOSITE of what the Fed wants — driving rates UP! The yield on the long bond hasn’t been this high in almost three months, while the 10-year yield is climbing fast.

Why is this happening? Because QE2 is torpedoing the U.S. dollar and fanning real inflation fears!

The Fed's monetary policy has pushed the dollar off a cliff while driving commodities up.
The Fed’s monetary policy has pushed the dollar off a cliff while driving commodities up.

The dollar index has plunged as much as 14 percent since June. Meanwhile, crude oil has surged as much as 31 percent … soybeans have climbed up to 32 percent … cotton has skyrocketed 72 percent … corn has jumped 75 percent … and wheat has shot up 85 percent. Gold, silver, copper, and other metals are flying, too.

In fact, inflation concerns have ramped up so much that Uncle Sam just sold a batch of $10 billion in 5-year Treasury Inflation Protection Securities at a negative interest rate. Yes, you read that right …

Investors bid so aggressively for the TIPS that they bore a coupon interest rate of MINUS 0.55 percent — the first time that has ever happened in U.S. history!

Why would anyone do that? Because the total return on TIPS doesn’t just stem from the fixed coupon yield they pay throughout their lifetime. The principal value of the securities also adjusts along with changes in the Consumer Price Index.

Bond investors were willing to accept a negative yield now because they believe future inflation will ramp up. That would drive the ultimate return they earn over the life of the securities high enough to compensate for the negative initial yield.

Unintended Consequences, Take Three

As inflation takes hold, shoppers will be forced to struggle with soaring prices on everyday necessities.
As inflation takes hold, shoppers will be forced to struggle with soaring prices on everyday necessities.

My conclusion? Once again, a recklessly easy monetary policy put in place by the Fed is having painful, unintended consequences …

We saw this in the late 1990s, when easy Fed money helped inflate the tech stock bubble. We saw this in the early 2000s, when easy Fed money helped inflate the housing bubble. And now, we’re seeing it again.

The Fed’s policy is NOT creating jobs. It’s NOT leading to a huge new boom in the economy. But it IS jacking up prices on a wide range of commodities and crushing the dollar, making it more expensive for companies and consumers to earn a living and pay their bills.

I wish we could just vote Bernanke out of office before he wrecks the economy again. But we can’t. All we can do as investors is take steps to protect ourselves from the Fed’s lunacy.

When it comes to your fixed income portfolio and your interest rate strategy, that means keeping the maturity on your bonds short.

You can also hedge yourself against declines in the price of long-term bonds using tools such as inverse exchange traded funds (ETFs). Looking for more specific details? Then check out Safe Money Report.

Until next time,


This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules