Viewpoint: The shocking truth about QE

Great news: quantitative easing is ending soon.

Yes, you read that right. People fret QE's end will be a bad thing, but it isn't. It's ultra-bullish. How do you know? Britain's economy accelerated after the Bank of England (BoE) quit its own QE lunacy, and virtually no one notices. That's a powerful precedent with huge surprise potential.

At 25% of gross domestic product (GDP), British QE was bigger than the US's - and it was no stimulus. It flattened the spread between short and long rates, a key source of bank profits - banks' primary motive to lend. Reducing them discourages lending - so it's anti-growth. If QE was truly stimulative, money supply would have grown fast. But broad money fell £149 billion from March 2010 to March 2012 and rose at a snail's pace after. GDP dipped and dived.

People thought QE was the only reason the UK economy didn't crater in 2010 and 2011. Not true - QE restrained growth. The BoE and Chancellor of the Exchequer tried a host of programmes to boost credit, not seeing that ceasing QE would be the real stimulus (and simpler).

Now Britain's economic chains are off, and it's skipping along. After the BoE stopped buying gilts last November, the yield spread widened and money supply sped up.

Services, manufacturing and construction purchasing managers' indices - all choppy during QE - are on a winning streak. Retail sales and housing, too. Mortgage approvals are going gangbusters and overall loan growth is stabilising. Second-quarter imports - a key domestic demand indicator - grew the fastest in three years. Fixed investment grew consecutive quarters for the first time since 2007. GDP accelerated. Corporate profitability strengthened. Shares are screaming. The FTSE 100 (UKX) is up double digits year-to-date.

All wildly contradict the notion of a modest, gradual reduction in the central bank's balance sheet being disastrous for the economy or stocks.

Expect the same for the US. Markets fear the party will stop once the Federal Reserve pulls the punchbowl - not realising the punchbowl is laced with sedatives. That the US is partying anyway is a miracle of underappreciated private sector strength. Once the Fed stops squashing the US yield spread, growth should skyrocket - just like Britain. It's basic.

Yet almost no one connects the dots between QE's end and Britain's swifter growth. Few even realised British QE was over until July, when BoE hold-outs stopped pushing for a restart. People wondered then what would become of the UK, not knowing they had the answer. Britons still don't see it and Americans don't even think to look across the pond.

So when American QE ends and the world doesn't, investors will be shocked. False fears are bullish. The bigger the misperception, the bigger the surprise power - and QE taper terror is a massive misperception. Faster growth will force investors to rethink their dismal outlook on shares. As their false fears flip to bullish belief, they'll pay more for future earnings.

Following Wednesday's American monetary stimulus update, Tanzeel Akhtar asks:What does the US Fed's QE-tapering delay mean for markets?

This will be doubly bullish, as long rates rise and banks lend more, businesses get more capital for growth-oriented spending. More revenue and earnings growth should follow. It's a virtuous cycle and could last for years. Buy shares now.

Strong consumer staples firms usually become market leaders as investors get giddy on a big bull market's ascent. With a big party waiting after QE ends, buy one of the world's largest booze-makers, Diageo. It's a high-quality, moderate-growth story that has a 2.3% dividend yield. And if I'm wrong on the bull market? Consumer staples do relatively well during the early stages of a bear market as well.

AstraZeneca has gone through a restructuring by cutting costs and shrinking itself. But I see growth returning in the long run thanks to a broad array of drugs that serve older patients in the US and in prosperous emerging markets like Brazil, China and India. It sells at 10 times my 2014 earnings estimate with a 5.8% dividend yield.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.