Room for strong retreat and rebound

There is nothing like the prospect of continuing cheap money to provide a boost for markets. Investors can borrow money at less than 1 percent interest and invest in the market for a 5 percent or 10 percent return. It's a community carry trade - borrowing cheap and putting to high return assets. Inevitably some of this cheap money enthusiasm flows through to business and companies. Industry gears up, as reflected in the recent increase in United States' jobs numbers.

There is also another unintended impact. Cheap money contributes to commodity price inflation as speculative investors enter the commodity markets in a quest for even better returns than those available from equity markets.

The US Federal Reserve bank chairman Ben Bernanke has continually hinted at another round of quantitative easing - a QE3. With interest rates remaining at all time lows there are few policy options available to keep the US economy growing. When QE1 and later QE2 were introduced they were touted as extraordinary temporary measures. The continued talk of QE3 suggests these are no longer temporary. They have become part of the fiscal policy landscape.