Unconventional Wisdom -- QE2 goes out with a bang:: Macquarie Research

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Unconventional Wisdom
QE2 goes out with a bang
Event
 US money supply growth soared as the Federal Reserve ended QE2.
Impact
 The end of QE2 looks very different to the end of QE1. The growth rate of US
M2 jumped to its highest point since the period following the Lehman debacle.
 Another difference this time is the expansion of liquidity in Japan, stronger
money supply growth in Europe and a weaker US$ which could induce
currency intervention.
 A stronger liquidity backdrop may not be the only reason why rising risks have
had a relatively limited impact on equity markets. But it is an important factor
and it is a positive signal for growth.
Analysis
 QE2 in the US ended almost a month ago. So far there has not been a major
shakeout in US financial markets although it may be too early to make a
definitive judgement.
 One potential reason for market stability is the fact that US money supply
growth accelerated sharply as QE2 came to an end. The difference with the
end of QE1 is stark.
 When the Federal Reserve concluded its first round of quantitative easing in
March 2010, US M2 growth was negative. The surge that accompanied
monetary easing after the Lehman bankruptcy was well and truly over. Money
supply growth was considerably stronger during the second round of
quantitative easing from late 2010. And M2 growth roared last month as this
program came to an end.