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QE2 Sell-the-news Starts Early?

|Includes:SPDR Gold Trust ETF (GLD), PHYS, SPY, UDN, UUP

Here's a preview of QE2, from WSJ and footnoted by FT Alphaville: a few $Bs of treasury purchases over a few months. This is so Japan-lost-decadey that it will surely trigger a preliminary sell the news today. Frontrunning the fed is so July. The new trade is frontrunning the Fed frontrunners.

Expect surge in USD and drop in stocks, gold, commods. Treasuries and TIPS are harder to predict.

I wrote early last week that the timid nature of QE2 is to be expected. The argument has only been strengthened by the earnings and economic news since then. Even Heli Bernanke now has a hard time arguing for a bazooka QE2. The market's expectation of QE2 has moderated a bit, but clearly still unrealistically high. My guess, which differs from that of FT Alphaville's, is that Fed has realized the danger of sudden disappointment, thus decided to leak the plan in hope of a softer blow.

So instead of one big crash on 11/3, we'll get two crashes, 10/27 and 11/3. Let's see how well this plan works out.




Disclosure: None

Stocks: GLD, PHYS, UUP, UDN, SPY