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     Feb 18, '14

Commentary and weekly watch by Doug Noland

Representative Frank Lucas: "…When we undo quantitative easing, what is the effect going to be on things like farm land prices or stock market prices or, for that matter, equities?"

Federal Reserve chair Janet Yellen: "I would agree that one of the channels by which monetary policy works is asset prices, and we have been trying to push down interest rates, particularly longer term interest rates. Those rates do matter to the valuation

of all assets, both stocks, houses, and land prices. And so I think it is fair to say that our monetary policy has had an effect of boosting asset prices. We have tried to look carefully at whether or not broad classes of asset prices suggest bubble-like activity. I've not seen that in stocks generally speaking. Land prices I would say suggest a greater degree of overvaluation."

Lucas: "Because, from the perspective of a number of us the concern about the old analogy - about the put your finger in the balloon and it pops out somewhere else - are concerns that we would potentially, unintentionally of course, create a bubble similar to what we went through in housing a decade ago, either in farmland prices, or somewhere else. And the consequence of that is just most unnerving. Your predecessor once, in response to a question from me when I asked, 'When will you know to undo the quantitative easing?' His response was, 'We'll know'. And my question then was, well if you didn't know when the problem was coming, how are you going to know when the problem is fixed to undo? So, I appreciate the challenges you face. I certainly wouldn't want your job. But then it took us two-and-a-half years to do a farm bill too." More ...

Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)




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