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Apparently behind the mid-afternoon drop in the S&P 500 (SPY) (a not insignificant 10...

Apparently behind the mid-afternoon drop in the S&P 500 (SPY) (a not insignificant 10 points), the soaring dollar (UUP), and sinking commodities (GLD, USO) was the rumor of a Jon Hilsenrath article set to hit the WSJ claiming "tapering" of asset purchases is coming sooner rather than later. Thus far, nothing is up.
Comments (47)
  • That's hilarious. Now even rumors of rumors (sorry, of serious analyses) are enough to move the HFT algos.
    9 May 2013, 03:46 PM Reply Like
  • can u imagine how bad it will be when the FED does not QE ! Fire in a theater!! Lemmings on CNBC promoting MOMO names and everything is a winner!! Won't be pretty
    9 May 2013, 03:49 PM Reply Like
  • $85B of QE3 being dumped into the market by Bernank&Friends, with NO end date! I hate this fake market prop & looks to me like the only way this ends is when the "bonds all get called" ~ can you say "Argentinian inflation???"
    9 May 2013, 11:26 PM Reply Like
  • yep, buy precious metals on the dips. Not gonna end!
    9 May 2013, 03:50 PM Reply Like
  • The same folks, who didn't understand what the real impact of QE has been, won't understand what its removal portends, either.
    9 May 2013, 03:50 PM Reply Like
  • You hit it!
    9 May 2013, 06:34 PM Reply Like
  • what does it's removal portend, Tack?
    9 May 2013, 07:14 PM Reply Like
  • But seriously, folks, if the end of QE portends a stock market crash, and QE means the debasement of the US dollar, perhaps ending it's status as the world's reserve currency, what is an investor to do?


    Any asset denominated in US dollars will be devalued drastically, except gold -- and gold is not working out so well at all!. But what other currency can we trust? Maybe the Canadian dollar?


    What other stock market can we go to? Albania's?
    9 May 2013, 08:08 PM Reply Like
  • didn't you just answer your own question? the end of QE is dollar positive, isn't it? but....I seriously doubt QE is going to end, or even taper, any time soon. these 'rumors' are just a BS rationale for a very necessary little pull back below 1600, to test weak holders. and before any serious correction can happen, the MMs need to freak people out a bit more about bonds and gold, just as you're already freaked out about gold, so they can scoop those up cheaply, while everyone that reads magazines heads into a 100% allocation of stocks. it's either funny or a bit sick.
    9 May 2013, 11:50 PM Reply Like
  • How does an observation that gold is not doing well -- a simple fact -- suggest to you that I am "freaking out" about gold?


    The end of QE might not be "dollar positive". It might mean just that there is no more dollar negative, but too late to save the dollar from a down slide. The dollar so far has been propped up because it remains the world's reserve currency; there is no valid alternative. But if countries start bypassing the need for any reserve currency at all, if they start transacting in their own currencies (as I read several are doing now, including China), then watch out below for the US dollar.


    And watch out below for assets based on US dollars -- mainly stocks and bonds.


    My main question was what to do instead of investing in US dollar - based assets, and no, I have not answered my own question.
    10 May 2013, 09:28 AM Reply Like
  • Somebody at Goldman needed a buying opportunity....
    9 May 2013, 03:51 PM Reply Like
  • UA LL LULU TSCO CAB all trading at ridiculously high multiples and have been straight up for 4 years They will be so bad an investment people will not understand what happened..Called not paying attention to valuation
    9 May 2013, 03:53 PM Reply Like
  • If your investment portfolio rests on QE providing the lift, you're not diversified, and are in fact vulnerable.
    9 May 2013, 04:04 PM Reply Like
  • Another weird day...SPY...TLT,GLD,FXF. negative...
    9 May 2013, 04:04 PM Reply Like
  • Take a look at the forex markets and the dixie for your answer.
    9 May 2013, 04:06 PM Reply Like
  • to quote another guru, "the $USD is the prettiest gal in the Ugly Girl Contest!"...
    9 May 2013, 11:25 PM Reply Like
  • Watching the FXA/FXF cross...
    9 May 2013, 04:30 PM Reply Like
  • Whitehawk, everything is tied to QE.
    9 May 2013, 04:33 PM Reply Like
  • How come everyone has the answer to everything except me?
    9 May 2013, 05:25 PM Reply Like
  • Hey Tack, why don't you tell us what the real impact of QE has been?
    9 May 2013, 05:53 PM Reply Like
  • Lake:


    Ask, and you shall receive.


    QE has merely replaced all the destroyed credit from the 2008 debacle. It isn't directly making anything in the economy move. That's actually occurring by conventional means, as people recover their confidence, earn, spend, etc. There's no legion of QE elves wandering in the night, buying clothes, autos and homes.


    It's also why those that think that QE does directly drive the economy will be shocked to find that things don't suddenly collapse when QE is tapered off.


    Maybe, that's another misconception, i.e., that some seem to equate QE ending with QE being reversed. Neither it nor its effects will be reversed. All the destroyed credit that was replaced by QE will still be out there. QE will only genuinely go into reverse if/when the economy heats up to the extent that the Fed wishes to reel in credit formation.
    9 May 2013, 06:01 PM Reply Like
  • Tack, thanks for your response. However, given that the Fed has tried three times to stop, not reverse, QE, and each time the markets have swooned, I'd say you're missing something in your analysis.


    Perhaps you're saying that QE doesn't have any impact on the economy and that Mr. Market is just being silly?
    9 May 2013, 06:27 PM Reply Like
  • Lake, you are talking about the market, while Tack talks about the economy. The market is driven by the fundamentals (economy), but also by liquidity. When the punch bowl is taken away, there will be effects on the market. There is no doubt about that. For example, AAPL, MSFT, etc won't be able to borrow cheaply to pay dividends / buy back, which means their share prices will drop. Without the cheap money, investors won't buy house in bulks, which will affect the builders, the mortgage service, etc.
    9 May 2013, 06:37 PM Reply Like
  • Silver, I disagree that Tack and I are talking about two different things. But, maybe Tack can clarify that for us.
    9 May 2013, 06:50 PM Reply Like
  • Lake & Silver:


    I'm talking about both.


    There is a msiconception that QE is directly driving the economy, which it is not. In fact, most of QE sits idle in excess reserves. What QE has done is replace the latent credit pool, which is only being utilized in rather desultory fashion, presently, i.e., no credit bubbles, or even close.


    But, because many think that QE is operating in some other manner (read commentary that appears incessantly here in SA), I fully expect there will be some initial pullback --maybe, even panicky selling, but I'm not forecasting that, per se -- when the fed announces any reduction and/or end to QE. But, I suspect that this will be rather short-lived, as it's discovered that life goes on rather unaltered, even without QE.
    9 May 2013, 07:13 PM Reply Like
  • Tack, I do not agree that people here on SA think that QE is driving the economy. I believe that most on SA interpret Bernanke's stated efforts to use QE to boost the market for it's wealth effect as just that. There has been no impact by QE whatsoever on the general economy, only on the markets.


    The market is elevated due to QE, and when it's stopped, we'll see who's right, I guess. Thanks for your responses!
    9 May 2013, 07:23 PM Reply Like
  • Tack:
    Spot on. Glad to see some go past usual cliches on currency debasement/QE to infinity/load on gold-silver.
    Been positioned for that since gold retreated from stratosphere.
    Not sure stocks will adjust smoothly though. My best guess is we've seen the highs on S&P. Just my guess of course...
    9 May 2013, 08:32 PM Reply Like
  • Tack


    At the time it appears we are experiencing a concern of growing inflation, we will see a reversal to some degree of the current Fed policy. The statements made by the Fed in the past regarding employment statistics notwithstanding, the Fed is more concerned about growing inflation than any other metric.


    When the Fed does diminish the monthly level of monetary expansion, we will experience a bearish opportunity in the bond market that will astound ever the bond bears.
    9 May 2013, 11:14 PM Reply Like
  • Exactly! QE is merely plugging the holes blown in the credit fabric by all the fraud/crime and shenanigans run by the banks. So the landscape remaind the smae right? The banks blew holes and the Fed plugged them.No great credit expansion - no hyperinflation. So what is the problem?
    Well ..The problem is actually much worse than mere Inflation. The Fed is changing the nature of our system. It is changing the fabric, the underlying business "morality" of it all. It is deciding who survives, who gets paid, who goes down. Its called Communism. Thats worse than inflation.
    10 May 2013, 02:30 AM Reply Like
  • Because - peeps please understand , our money is just "monopoly money" - infinitely malleable. Money is not a constrained quantity. Money ... is actually Nothing!!
    What is important is the social contract. The trust. The rules-of-the-game. So people expend their best energies towards the general progress - most of the time.
    Bernanke is utterly destroying this fabric. By elevating banks to the extent he has - he is destroying the social fabric. This is much worse than mere inflation. It is like the Soviet Union never died - it simply moved across the Atlantic Ocean and took up residency in its North American Territories ( formerly known by the aborgines as "America")
    10 May 2013, 02:39 AM Reply Like
  • Tack, I think you summed it up. It's a head game to give confidence and grow the economy. I see some fluctuations in the market when QE is phased down, but nothing serious.
    9 May 2013, 06:27 PM Reply Like
  • That depends on the stock. Many of the momo names that got levitated because of the perceived "put" provided by the fed will see significant haircut to their valuations.
    9 May 2013, 08:06 PM Reply Like
  • At a minimum, ending of QE means rising interest rates. When you remove the buyer of 65% of the 7+yr bonds- it's gonna have an impact.


    Cheap cars and houses are going to be impacted by rising rates, arguably the primary recipients and drivers of the recent uptick in those markets.


    Tapering QE into a global economic downturn! That that would just be like the Fed! Always wrong Ben!
    9 May 2013, 07:12 PM Reply Like
  • I think most people agree that QE has pushed down rates materially in the long end - fundamentally it should because given the amount of flow the Fed is a very large buyer at these maturities - and that these rates almost have to come back up at least slightly when purchases taper off. And if the tapering is combined with further real improvement in the economy which would send rates up anyway - as the Fed says they will do - then rates could really move.


    While the money probably hasn't flowed directly from POMO into stocks like the Zero Hedge doomers say, what has changed is the relative attractiveness of stocks and HY debt to income-seeking investors. Not just individual investors but pension funds and institutions who have most of the "real money" and really move fundamental valuations in the market.


    The easy thing to believe is that "markets are efficient" as "this is smart money at large funds who will realize when high quality div stocks / HY bonds are overvalued" but even if this is true it isn't relevant. The way things work at a lot of these funds is that they are given a target to meet and then set allocations try to minimize risk around the target. High quality non-risk assets do not help meet these targets any longer. Instead investors are pushing into the next best thing - HY and high quality income stocks as they are the (modeled as, often based on historical vol which has indeed been super low) lowest risk / highest sharpe ratio alternatives to meet their required returns. Rest assured these funds will push right back into lower risk assets if yields rise - giving the fed a bit of a buffer to taper off purchases.


    To me the case for a barbell portfolio of cyclical stocks and cash has never been greater. Investor preference for cyclical stocks is still low and valuations are reasonable here; in addition many of the companies have used the low rate environment to delever and/or refinance on very attractive terms. If rates rise you will be glad you didn't take on the added rate risk, you will do well on your cash, and your cyclical stocks will probably do great since the economy probably improved materially. If rates grind down to 0 and we keep the QE status quo as Japan did (possible) you'll miss out on some carry and roll vs cash in what would have been your HY/Div portfolio, but it's likely cyclicals will do fine anyway even in that scenario and so you won't lose much. And in a doomsday scenario your cyclicals will do poorly but your cash will greatly outperform HY / div stocks.
    9 May 2013, 08:19 PM Reply Like
  • Nice post Ron. In your view, why has Gold and Silver fallen so much?
    9 May 2013, 10:18 PM Reply Like
  • Ron - excellent post! I too believe that the primary issue in investing is : protection of your wealth. Real assets are the goal. Money/cash is of uncertain and temporary value. The so called "cyclical" stocks - are often companies with hard assets - energy, food, metals etc.
    Risk management to me is how much exposure do you want to have to Bernanke Bucks - beyond the amount you need for day-to-day expenses and taxes.
    10 May 2013, 03:08 AM Reply Like
  • Folks,


    No need to debate who is right regarding QE. It does not change smart money having to investing with the Fed. You buy stocks and credit while QE is on. Sell when QE ends. After market corrects, if the world does not fall apart, you get back in the game. Life goes on...


    Think of QE as an alpha generating freebie gifted to SA members.
    9 May 2013, 11:11 PM Reply Like
  • Tapering...Isn't that what swimmers do before they go faster than ever in the race?
    9 May 2013, 11:42 PM Reply Like
  • QE is the kind of thing a deranged academic does. Who has no understanding of what happens when you shock/perturb complex , intricately woven social systems.
    QE is like throwing a rock into a beehive. Nobody can predict whether the bees will die, or the bees will come out and sting you to death. Or, if the bees die, whether you will have any fruits in your orchard the next year. or if the lack of fruits causes diseases that lead to our extinction.
    My problem with Bernanke is his utter lack of humility - in dealing with the most wonderous social system we call America - its too complex for anyone to figure out - so wise people dont mess with it. He thinks that monkeying around with our "monopoly money" and "Managing Expectations" ( ie. fooling people) will get us the peasants to buck up , rally around and gather their energies to polish the shoes of the financial elite. An arrogant fool - and Iam being generous.
    10 May 2013, 03:00 AM Reply Like
  • Yes the Dollar has rallied modestly. But - no-one should be taking victory laps yet. In this Fed created unstable system - things can change suddenly.
    Its how you survive/prosper during the convulsions we have every 3 or 4 years, that will determine your financial future. The intervening small "trends", "swings" etc. may provide some entertainment value - but its the Convulsions that matter.
    10 May 2013, 03:17 AM Reply Like
  • The rally in the dollar from around 78 yen to 101 yen is not a modest rally. I guess the fed is willing to have a stronger dollar in exchange for lower commodity prices. Oil at $95+ is still a major concern though. The economy would be much stronger if oil could get below $70 a barrel and stay there. Europe is suffering enough, and a Euro above $1.30 will slow down a European recovery. I guess where things are now helps spread the pain rather than concentrate it, however if the dollar strengthens any further it would be very problematic for many.
    10 May 2013, 05:42 AM Reply Like
  • So, in this environment, "diversification" means having a multidimensional portfolio where you dont get killed during the next 'Convulsion". The convulsion could be anything - a sudden plunge in the Dollar, a sudden rise in interest rates, a stock market crash. High inflation, High Deflation. Who knows? ask ben.
    10 May 2013, 03:20 AM Reply Like
  • More "convulsion" possibilities: Money Market Funds crashing, Bank Deposits becoming risky. taxes. Inflation.
    No legal system, or at least , no enforcement of laws - just modest businesslike adjustments "admitting neither guilt or lack of guilt".
    10 May 2013, 03:23 AM Reply Like
  • For the first time in over 6 months the Fed used the word "increase" of QE in its last statement. ECB,Korea and Australia have since cut rates while BOJ $75 a month and Fed $85 QE programs continue. Those are not rumors
    10 May 2013, 05:34 AM Reply Like
  • When does the "double-diapered" crowd run out of money from impulsive sales in a bull market?
    10 May 2013, 07:00 AM Reply Like
  • After all this talk , what is the bottom line ??
    10 May 2013, 07:32 AM Reply Like
  • Play with fire, get burned by fire. Play with QE, get burned by QE.
    10 May 2013, 01:27 PM Reply Like
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