Friday, September 7, 2012

Central Bank Intervention Risk: ECB Outright Monetary Transactions and Federal Reserve Quantitative Easing

It looks like all sorts of risk markets have taken off for the sky with all such markets looking at brand new multi-year highs or at least looking to reach there. Even today's underwhelming Nonfarm payroll jobs number could not dent the continued enthusiasm for central bank action past, present, and future. How long this will last is the question. In regards to the ECB, it is no longer hope but a known quantity, the newly announced and oftentimes leaked Outright Monetary Transactions (OMT) for "unlimited" bond buying on the short end of Euro sovereign debt. The bond buying program is said to be sterilized. Despite that claim, gold prices have shot up dramatically these past few weeks and continue to outperform risk markets. Next on tap is the FOMC decision. Some anticipate QE3 sooner than later, especially since Bernanke has mostly focused on the employment part of the Fed mandate as of late.

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