The End (of QE) Is Near! Run For Your Lives!
August 25, 2009
– Comments (2)
A couple of days ago, I read an article “How To Trade Using Game Theory” on SeekingAlpha. I had to figure out what “game theory” is, and also “quantitative easing” (QE), since QE is at the heart of this article.
GAME THEORY postulates a finite number of players, choosing strategies that is most advantageous taking into account the actions of other players
QE is simply the Fed increasing the money supply by buying up Treasuries, thereby flooding the banks with cash. Then, in theory, the banks increase lending and interest rates go down.
I did not agree with everything in the article (the portions which I understood), but he has a good point: QE is ending next month. What will happen then? He postulates that the increase in money supply is behind the rallies in stocks and commodities. This would also explain the fall of the dollar: increased supply = fall in exchange rates. Does an end to QE foretell the collapse of stocks and commodities, and also a stronger dollar? I wonder.
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