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By Jason Stipp | 10-28-2010 06:15 PM

Five Terrifying Tales from the Market

Why Morningstar markets editor Jeremy Glaser is haunted by QE2, college costs, the job market, tax uncertainty, and Berkshire's new hire.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to a very scary Halloween edition of the Friday Five.

This week, we've got five terrifying tales from the world of finance from Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: You're welcome, Jason.

Stipp: So what do you have for the nail-biting Friday Five this week?

Glaser: I don't know if I'm quite as terrified as you, but I think in the market we saw some terrifying tales of quantitative easing, of college costs, of continued unemployment, of tax uncertainty, and finally an October surprise from one of our favorite companies.

Stipp: One of my favorite headlines this week came from Jeremy Grantham. He wrote a report called "Night of the Living Fed." Why is quantitative easing so scary to people?

Glaser: I'm not sure why people are quite as scared of quantitative easing as they are, but I think a lot of it is that we haven't really tried quantitative easing in the scale that we might be doing it again.

Now sure, there was a lot of quantitative easing during the heart of the crisis, but then basically anything went, and the idea is that the Fed is going to step outside of its mandate that usually has to do with short-term bonds and look at long-term bonds, and try to bring down the price--try to print a bunch of money, put it out there in the marketplace, try to get some inflation going, get people out there spending and doing whatever that they need to be doing to get the economy to move again.

Now, in terms of building inflation expectations, it's been successful so far, and it hasn't even been announced yet. The markets obviously already reacted to it. We saw it rally a few times, when it looked like [QE] was more likely. And when it seemed that [QE] could be smaller, the market actually fell back.

Some TIPS bonds priced with a negative yield, showing that investor expectations for inflation are certainly rising. So in that sense, it's working, but nobody really knows what the outcome of actually doing it is going to be. Are we going to end up with runway inflation? Are we going to end up with nothing happening because the consumer demand to buy these goods isn't there, so giving more money doesn't actually produce that end demand that you're trying to find.

It could be a little bit scary as we wait to see what happens with it.

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