QE 1.5

As expected, The Fed has announced that they will roll capital from maturing mortgage-backed-securities into 2-10 year treasuries. While not monumental enough to warrant being described as QE2, Barry Ritholtz has dubbed this QE 1.5 and I find that to be very appropriate. If they instead simply allowed the cash from maturing securities to let be, it would shrink their balance sheet (even if sloooooowly) and be considered somewhat of a tightening bias. Since the Fed thinks the recovery may be stalling (see WSJ article), this is not a very strong vote of confidence in the economy.

Gold popped up above $1200/oz on the news but has since settled down a bit. The USD is weakening substantially against some fo the major currencies as the rest of the G7 is beginning a tightening bias. Don't expect cheap international travel for awhile.

For what its worth, I'm not sure what the continued benefit of QE will be going forward. It seems to me that market/political uncertainty is inhibiting growth more than an access to cheap money. All that the corporates are doing (a lá IBM) is raising cheap money to pay off more expensive debt, shore up balance sheets and generally hoard it as if Cormac McCarthy were writing their future.