More of the same, for now...

"As the financial crisis has receded, the Federal Reserve has scaled back its extraordinary provision of liquidity. Eventually, the Fed will remove all remaining monetary stimulus by raising the federal funds rate and shrinking its balance sheet. The timing of such renormalizations depends crucially on evolving economic conditions.

Many predict that the economy will take years to return to full employment and that inflation will remain very low. If so, it seems likely that the Fed’s exit from the current accommodative stance of monetary policy will take a significant period of time.

Assuming unconventional policy stimulus is maintained... the recommended period of a near-zero funds rate would end at the beginning of 2012."

Glenn D. Rudebusch at the Federal Reserve Bank of San Francisco

1. Low rates push both retail/institutional money out to chase yield/risk.
2. Risky assets go up in price and miscellaneous speculations ensue.
3. Speculations imply losses.

"One of the big drivers of the equity volatility is the Fed's zero rate policy, which is forcing investors to search for yield in some very strange places. Once again, we call on our friends at the Federal Reserve Board to let interest rates slowly start to rise before this situation gets entirely out of hand -- again. As we said at the top of this comment, the banks are on the mend. Time to find out whether the US economy can grow with positive real interest rates."

Christopher Whalen