Currency War Sends Dow Higherhttp://www.fool.com/investing/general/2012/09/27/currency-war-sends-dow-higher.aspx John Maxfield
September 27, 2012
You'd be excused for wondering why the Dow Jones Industrial Average (INDEX: ^DJI ) is up nearly 100 points in intraday trading, as economic news on the domestic front seems to be going from bad to worse. In a further testament to our increasingly globalized world, the explanation for the move is traceable to policymakers across the Pacific Ocean.
Money, money everywhere!
If the move sounds familiar, that's because it is. In the last month, central banks in every major country have unleashed a flood of liquidity into the global economy.
The European Central Bank triggered the cascade at the beginning of September by initiating an "unlimited" bond-buying program designed to relieve pressure on countries like Spain and Italy, both of which have seen bond yields rise to unsustainable levels. The U.S. Federal Reserve followed suit roughly one week later by announcing a third round of quantitative easing -- known derisively as "QE-infinity" -- under which it will purchase $40 billion a month in mortgage-backed securities until the economy improves. And rounding out the world's major central banks, a week after the Fed's move, Japan's monetary policymakers set a similar course by expanding the country's ongoing stimulus program by 10 trillion yen, or $126 billion.
The influx is so great, in fact, that countries like Brazil and South Korea have characterized the moves as salvos in an ongoing currency war. Following Japan's decision, Brazilian Finance Minister Guido Mantega, the man credited with coining the term "currency war," warned, "It has to be understood that there are consequences." And in a recent editorial titled "Currency War Redux," The Korea Herald implored its government to "prepare steps to address [any] adverse effects on the Korean economy."
Monetary easing and equity prices
As I write, only two out of the Dow's 30 component stocks are in the red. The rest are all trading higher. The two biggest beneficiaries of t