Fisher Investments Editorial Staff
US Economy

Fashionably Flaky

By, 05/08/2009

Story Highlights:

  • Though global consensus on monetary stimulus has been impressive, the Eurozone was notably lagging its developed brethren.
  • Some of that monetary gap was closed Thursday after the European Central Bank announced another rate cut and a possible quantitative easing campaign.
  • The Bank of England expanded its quantitative easing campaign. All the major developed regions/countries are now roughly in line with monetary initiatives.
  • That's bullish for the global economy in the months to come—and stocks should rise in anticipation of economic recovery and growth.

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Our European friends have always seemed more fashionable than us plodding Americans. After all, Europe is home to high fashion, inscrutable art-house movies, tiny coffee cups, and poised pinky fingers. Oh, and they're known to arrive just in time to make a fashionable entrance. So we weren't too surprised when, Thursday, fashionably late but not willing to totally flake, the European Central Bank (ECB) announced it may begin a quantitative easing campaign and again cut interest rates (-0.25% to a record low 1.00%).

Monetary and fiscal stimulus plans announced thus far have been huge and semi-coordinated on a global basis—but you've heard us say that plenty. To get a handle on why that's good and what's been done so far, check here and here. But the key word in the above sentence is "semi-coordinated." Though consensus about what must be done has been impressive, policy initiatives have varied regarding how much and when. The Eurozone was notably lagging its developed brethren.

Some of that monetary gap closed Thursday. Added to the central bank rate cut and €60 billion ($80 billion) in announced corporate bond purchases, the ECB also expanded bank support by doubling the duration of short-term bank loans to a year and opened their balance sheet to the European Investment Bank (responsible for funding government projects all over Europe).

The ECB has historically been very conservative, favoring inflation control to growth. But Thursday's moves seem to show deflation is now their primary concern, and they'll do what's necessary to jumpstart expansion—rightfully leaving inflation concerns for another year.

With the ECB's announcement, all the major developed regions/countries are now roughly in line with monetary initiatives. The US, UK, and Japan began quantitative easing some months ago, and all three reduced rates to between 0.00% and 0.50%. Combined with the good news from the Continent, the Bank of England furthered their quantitative easing campaign Thursday, announcing plans to spend an additional £50 billion ($76 billion) on corporate and government bonds.

In all, monetary stimulus on a global level is simply massive. And that's bullish for the global economy in the months to come. But we continue to stress the market as the ultimate leading indicator—stocks will rise in anticipation of economic recovery and growth. Being fashionably late to a Parisian party might net a few jealous stares, but a bull market won't be so ingratiating—early arrivals will be the stars of that soiree.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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