Inflation will deflate stocks

We witnessed euphoria in the markets this week as the they rallied on the back of the US Federal Reserves's second bout of quantitative easing. But it won't last.

Stockmarkets reacted to the Fed's latest round of quantitative easing (QE2) "in classic Pavlovian fashion", says Tim Price of PFP Wealth Management. "Ring the dinner bell announcing fresh liquidity, and they will rally in response."

Never mind poor fundamentals: after all, yet more money printing shows that the Fed thinks the economy is in lousy shape. "Euphoria sponsored by liquidity provision" propelled the S&P 500 and the FTSE 100 to their highest levels in over two years last week.

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