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What Mr. Bernanke Got Right—Searching for Alpha for October 2012

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When he started the first of three rounds of quantitative easing, Federal Reserve Chairman Ben Bernanke’s biggest assumption was that price pressure would remain low. That, he figured, would give his easy money strategies sufficient runway to jumpstart the economy without worrying about spiraling inflation.  

Although it’s unlikely he thought three rounds of QE would eventually be needed, his inflation prediction was spot-on. And the recent crude oil “flash crash,” which has caused its price to drop below $90 per barrel, should give Fed fans even more comfort. 

The global economy seems to be in a sort of virtuous cycle, as the weakness in Europe is preventing inflation, which is allowing the U.S.’s easy money strategy to heal the economy. Meanwhile, the government is borrowing more, albeit for free.  

I expect this tailwind to prop up stocks throughout the fourth quarter.


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