Friday, May 20, 2011

"What To Expect As QE 2 Ends..."

I don't think that gold bucks the trend this time. Down, then up on QE3.
If correct, a leveraged bet against the miners would be in order.
Judging the magnitude of the market reaction is tougher this time as the size of the bond buying was only half that of QE1
From ZeroHedge:
We have long claimed that 2011 is playing out in a manner virtually identical to 2010, almost to the tic. And as we approach the end of QE2 in 6 weeks, a quick glance at what happened with stocks following the end of QE1 in March of 2010, will be illustrative of what to expect this time around, because contrary to what Comcast's business channel would want its ever declining viewers to believe, it never really is "different this time."

To help with that comparison, here is a David Rosenberg summarizing what happened between the end of QE1 and Bernanke's August 27 announcement of QE2. If this is all it takes, then as we (and Scott Minerd earlier) have predicted, get ready for not only QE3, but 4, 5 and so forth. And not only that, but Rosie joins the likes of Zero Hedge, Minerd, Koo, Janjuah and all other pragmatics who realize that the Fed will never, never, allow deflation to run its course even if that means collateralizing the dollar with sewer bonds and physical housing, which incidentally is what Rosenberg predicts:  
"the day the QE programs run their full course, the Fed will have likely added physical housing units to its balance sheet as opposed to just mortgage paper. Ben Bernanke will be the biggest landlord in the country at that time."
Rosie reminds what happened laste year between the end of QE1 and the surprise start of QE2
  • S&P 500 sagged from 1,217 to 1,064
  • S&P 600 small caps dell 394 to 330
  • The best performing equity sectors were telecom services, utilities, consumer staples and healthcar, in other words - the defensives The worst performers were financial, tech, energy, and consumer discretionary [sound familiar?]
  • Baa corporate spreads widened +59 bps from 237 bps to 296 bps
  • CRB futures index dropped from 279 to 267
  • Oil went from $84.30 a barrel to $75.20
  • The trade-weighted US dollar index (against major currencies) firmed to 76.5 from 75.5
  • The yield on the 10-year US Treasury note plunged to 2.66% from 3.84%
and yet...
  • Gold was the commodity that bucked the trend as it acted as a refuge at a time of intensifying and financial uncertainty - to $1,235 an ounce from $1,140 and even with a more stable-to-strong U.S. dollar too.
In other words, for those who have forgotte, gold was the only commodity that outperformed and in fact rose, as at least someone had an inkling that QE 2 was coming...