Markets anticipate the QE2 ‘Lifeboat Party’

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading, Oil markets

Index Oct10.pngWarren Buffett, the legendary US investor once cautioned that “over time, markets will do extraordinary, even bizarre, things.”

We are certainly living through such times today.

In August, the US S&P 500 Index fell 5%, as investors worried about the end of stimulus packages, and the return of banking problems in Europe. The IeC Boom/Gloom Index mirrored this fall, sinking back to its post October 2008 lows.

These fears came true came true last month, as the weaker European economies faced record levels of interest rate spreads; Ireland warned the rescue of Allied Irish Bank might cost a third of GDP; and the US Federal Reserve said it might resume Quantitative Easing (QE2), due to its worries about the US economy.

In response, the US S&P 500 rallied 9%, with the Boom/Gloom Index (above) tracking it once again as sentiment turned bullish.

Extraordinary, even bizarre“, might seem a good description of events.

The issue is our old friend, liquidity. As the SEC report into May’s ‘Flash Crash’ shows, the high-speed traders who now dominate financial markets couldn’t care less about underlying economic reality. To them, as BofA Merrill Lynch commented, “QE2 = the Bernanke Lifeboat for the equity market“. All the boys with the big computers care about is that the US Federal Reserve might soon sponsor another tidal wave of liquidity.

They expect this to trigger renewed fears about the potential for rising inflation. In turn, they hope this will drive the value of the US$ lower, and cause renewed buying of commodities such as crude oil. Its the perfect opportunity for them to max out on bonuses in time for Xmas.

But once the party has ended, and the computers have been shut down for the night, it will be the real world of the chemical industry that will have to pick up the pieces.


Shell focuses on profitable upgrading of hydrocarbons


Business models have been changing over the past decade in the chemical industry...

Learn more

Chemical Industry & Employment Outlook webinar


The blog is pleased to have been invited by the American Chemical Society (ACS) ...

Learn more
More posts
China’s lockdown makes global debt crisis now almost certain

Beijing has a population of 21.5 million, but you wouldn’t know it from this BBC video from la...

Financial markets head for (another) train crash as coronavirus starts to impact

China’s industrial heartland of Hubei (pop 59m) and its capital Wuhan (pop 11m) have now been ...

Coronavirus disruptions make global recession almost certain

Last month, our Hong Kong-based pH Report colleague, Daniël de Blocq van Scheltinga, warned of the ...

Your A to Z Guide to the Brexit trade negotiations

A. Article 50 of the Lisbon Treaty set out the rules for leaving the European Union. As with most ne...

China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Automakers face stiff headwinds in big emerging markets

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Contingency planning is essential in 2020 as “synchronised slowdown” continues

The IMF has now confirmed that the world economy has moved into the synchronised slowdown that I for...

Will stock markets see a Minsky Moment in 2020?

Few investors now remember the days when price discovery was thought to be the key role of stock mar...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more