Looked at another way, most people would accept that bond yields are lower, and equity prices higher, because of QE. But if a rise in bond yields and a sharp fall in the stockmarket is economically damaging, when can the Fed possibly withdraw the policy? In the meantime, in the land of the free, the central bank steadily becomes a bigger and bigger player in the markets.
As Michael Hartnett of Bank of America Merrill Lynch commented
In our view, the longer Main St. takes to recover, the greater the risk of asset bubbles. Equity fund inflows this week are running at record levels, investor cash levels are high, US stocks are at all-time highs and today Priceline became the first S&P 500 issue ever to trade above $1000.
It is very hard to tell where the bubbles might form, or indeed whether there are bubbles already, because it is hard to know where asset prices might be without central bank support. We could easily repeat the late 1990s where investors pile into equities, not because they believe in the fundamentals, but because they don't want to miss out on the big bucks.
