End of QE2: investors are scared

Investors seem to be scared of the end of QE2 on June 30, 2011. (After it ends, QE3 isn’t likely, judging by Federal Reserve Chairman Bernanke’s comments.)

A Bloomberg survey revealed that 43 percent of financial professionals expect the S&P 500 to fall and 54 percent expect the 10-year Treasury yields to rise.

Rising yields in this context would be bad because it would spell a tightening of liquidity for the US economy and financial markets due to the lack of willing lenders.

Many financial professionals, in fact, believe it is only the artificially low interest rates (i.e. QE2) that have propped up US financial assets – without them, the assets will fall.

“The recent rally in stocks is a direct result of QE2. As the stimulus money is removed from the system, the result will be lower stocks worldwide and an international flight to quality,” Joseph Russo, managing director at NY-based RAIT Securities and a participant in the survey, told Bloomberg.