Bazooka Ben fires another powerful salvo
Dr. Ben Bernanke delivered the long anticipated QE3 in spades on Thursday as the Federal Reserve announced it would buy some $40 billion of mortgage backed securities every month and plans to keep its short term interest rates near zero, now for as far as the eye can see into mid-2015. The plan is to keep this aggressive profile in place until the job market and economy start moving in the right direction.
Whether or not these moves will actually do any good is the subject of widespread debate, but for now the markets don't seem to care as asset classes spiked higher across the board.
In the ETF world, numerous substantial gains were logged in a wide range of asset classes.
One swallow does not a summer make, however, a look at Thursday's action offers a clue at which ETFs and sectors could be the big movers through this next round of quantitative easing:
All performance figures are for Thursday's gains:
- SPDR Gold Trust: (NYSEARCA:GLD) +2.02%
- iShares Silver Trust: (NYSEARCA:SLV) +4.36%
- VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV) +7.44%
- S&P Metals and Mining (NYSEARCA:XME) +4.4%
- Nasdaq 100 (NASDAQ:QQQ) +1.4%
- SPDR Financial Sector (NYSEARCA:XLF) +2.6%
- iPath Dow Jones UBS Copper ETN (NYSEARCA:JJC) +1.35%
- MarketVectors Russia ETF (NYSEARCA:RSX) +3.9%
- iShares MSCI Italy Index (NYSEARCA:EWI) +2.4%
- MarketVectors Gold Miners (NYSEARCA:GDX) +5.0%
Now it doesn't take a rocket scientist to see a noticeable pattern here.
- Precious metals ETFs are likely to be hot during QE3, just like they were during previous rounds of easing.
- Commodity ETFs, materials, metals and mining hold promise
- Financial ETFs now have the full faith and credit of the Federal Reserve behind them.
- Emerging markets and international markets, including Europe, could make a strong comeback after being beaten up all year.
- U.S. indexes rallied hard during previous bouts of QE and could be expected to do so again. Volatility would decline if equities rise and so short volatility positions could prosper.
No one knows how, when or where this will end, probably not even Dr. Bernanke, himself, as we are now in totally uncharted territory. The Fed is writing history and the rest of us are along for the ride.
The only certainty is that, starting right now, the "Bernanke Put" is once again in play as "Bazooka Ben" steps up with another powerful monetary attack, perhaps his most potent to date.
Disclosure: I am long XIV, XLF. I am also long EEM call options, XLF call options and VXX put options. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.