QE2 and a vote of no confidence

At the November 3^rd FOMC meeting, the US Fed announced additional quantitative easing policy (QE2), amounting to $600 billion.

• The size of QE2 is lower than QE1 ($1.7 tn) and the market consensus ($1 tn).
• The Fed will purchase T-bonds worth $185 bn every month until June 2011.

At the same time, Bank of America confirmed that it plans to sell $10.7 bln worth of BlockRock shares, validating people’s thinking that the US lender has found it difficult to refinance debt, which is coming due ($15 bln in 2010, $60.2 bln in 2011 and $78.6 bln in 2012). The need to sell a good performing asset highlights the magnitude of the problem faced by the North Carolina-based bank.

From a big picture perspective, the fact that Blackrock could not find a strategic foreign buyer for Bank of America’s stake does not speak positively about the attractiveness of US dollar assets – BlackRock equity is seen as a leveraged bet on US rates staying low and the US dollar appreciating from a foreign strategic investors’ perspective. So this could be a vote of no confidence in the Fed and its monetary policy.