When quantitative easing stops

At some point – it could be sooner, it could be later – the U.S. Federal Reserve will “pull the plug”
on its “economic-stimulus/quantitative-easing/bond-buyback” program. And when it does, “it
will be a dog-bites-man kind of day,” says this advisory.

But take heart: “the world will continue to spin on its axis and the sun will continue to rise in the
east. Or so we hope!” In the meantime, it’s a safe assumption that the early days of a Fed
reversal won’t be pretty.

Stock prices and markets, intoxicated by years of “unprecedented government backstopping,”
will go into a skid once the Fed’s program of quantitative easing stops driving the bus.The resulting
wreck, even if it’s only short term, will no doubt kick the 24-hour news cycle into “overdrive.”

Some of this news frenzy, no doubt, will focus on things like the impact of higher interest
rates on Canada’s urban housing market. Yet, this advisory is quick to add that higher rates,
as well as the end of quantitative easing, won’t necessarily “sink all boats.”

Take such big Canadian insurers as Manulife and Sun Life. A move toward higher rates would
be good news for these companies’ beaten-down shares. And if the housing market can weather
higher rates, Canadian financials will mainly benefit from the wider spread between what they
pay their depositors versus what they can charge their loan customers.

Needless to say, it won’t be “business as usual” when quantitative easing comes to an end. So,
investors should be proactive. Think about who the potential winners and losers will be in this
new world – perhaps with the aid of a financial advisor.

Canadian MoneySaver, 55 King Street West, Suite 700, Kitchener, Ont., N2G 4W1
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