INSIGHTS

On December 21, 2010

QE2 to fuel growth in 2011

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While many critics are claiming that QE2 has not worked, many are forgetting what the purpose is behind the purchasing of Treasuries. The immediate product was to maintain a low interest rate environment in order to stimulate the economy by mitigating any deflationary threat. So while rates have gone the opposite way of the Fed’s  purpose, the end result was occurring. The positive economic numbers and equity market returns were written well before the QE2 was established. We believe the QE2 will actually further fuel the next growth phase in the economy and is a key drive in our very bullish stance for 2011.

The Small Business Optimism Index came out last week and broke above a fairly significant resistance. While reviewing technical chart patterns with economic metrics is always a bit dicey, the historical significance in this number is worth noting. We haven’t written about it in a while, but continue to believe that the potential parabolic gain in the economy and asset prices will be greatly derived from the significant gains from small business.

Small Business Optimism Index



Source: NFIB, Bloomberg. See Charts/Graphs Disclosure.

The low occurred on March 2009 since going to a monthly measurement in 1986. We have broken out last month with a reading of 93.2 where resistance was seen at 92.9. We expect a significant improvement in the economy from small business as the excess liquidity that has been building has yet to be released in significant amounts. If you haven’t picked up on it yet, we see the glass as half full in the current environment. We suggest taking a drink because we believe it will continue to fill up over the next year.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the disclosures webpage for additional risk information. For additional commentary or financial resources, please visit www.aamlive.com/blog.