One of the common themes in the media regarding the stock market in recent years has been that investors are fearful of the Federal Reserve cutting back on its quantitative easing efforts. Top strategist Ken Fisher doesn’t buy that logic.
“This is just such rot. Why would they fear rising long-term rates? Higher rates are supply-side monetary stimulus — which is just what the world needs now, after five years of the evil twin, demand-side monetary stimulus,” Fisher writes in a Financial Times column.
Fisher says that supply-side factors matter more in terms of increasing money growth than do demand-side factors. You can create all the demand you want, he argues, but if banks don’t think they can make enough profits on their loans, they won’t lend — and that’s what grows the money supply and economy.
“Banks’ core business is borrowing from depositors at short-term (lower) rates and lending at long-term (higher) rates. The spread is their profit. When short rates are fixed near zero and long rates are held down, profits shrink and banks don’t lend. They’re not charities,” Fisher says. “This is why QE fails.”
Fisher says U.K. lending has increased after the country’s quantitative easing program ended, and he expects the same to occur in the U.S. With few expecting that to happen, that means good things for stocks, he says.