Too Fast, Too Furious - Hedging For A Short-Term Correction

Summary

  • Whether you believe the Fed's actions are "QE," "QE-Lite," or "Not QE at all" is largely irrelevant.
  • What is relevant is that each time the Fed has engaged in monetary programs, the markets have risen.
  • Currently, our portfolios are long-biased meaning we have more equity-risk in our allocation than fixed income and cash.

The "QE, Not QE" Rally Is On

Last week, we discussed the "QE, Not QE" rally:

"Just recently, we released a study for our RIAPro Subscribers on historical QE programs and what sectors, markets, and commodities perform best."

'On October 9, 2019, the Federal Reserve announced a resumption of quantitative easing (QE). Fed Chairman Jerome Powell went to great lengths to make sure he characterized the new operation as something different than QE. Like QE 1, 2, and 3, this new action involves a series of large asset purchases of Treasury securities conducted by the Fed. The action is designed to pump liquidity and reserves into the banking system.

Regardless of the nomenclature, what matters to investors is whether this new action will have an effect on asset prices similar to prior rounds of QE. For the remainder of this article, we refer to the latest action as QE 4.'"

The following is one of the tables from the article.

As you will notice, all major markets increased in value during QE-1, 2, and 3.

Regardless, whether you believe the Fed's actions are "QE," "QE-Lite," or "Not QE at all" is largely irrelevant.

What is relevant is that each time the Fed has engaged in monetary programs, the markets have risen. Therefore, it should not be surprising investors now have a "Pavlovian" response to the Fed's "ringing of the bell."

During the past few weeks, we have discussed the probability of a year-end rally, which would be supported by both the Fed, and a "trade deal." The following links will catch you up on our premise.

This article was written by

Lance Roberts profile picture
29.85K Followers
Unique, unbiased and contrarian real investment advice

After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; I have pretty much "been there and done that" at one point or another. I am currently a partner at RIA Advisors in Houston, Texas.

The majority of my time is spent analyzing, researching and writing commentary about investing, investor psychology and macro-views of the markets and the economy. My thoughts are not generally mainstream and are often contrarian in nature but I try an use a common sense approach, clear explanations and my “real world” experience in the process.

I am a managing partner of RIA Pro, a weekly subscriber based-newsletter that is distributed to individual and professional investors nationwide. The newsletter covers economic, political and market topics as they relate to your money and life.

I also write a daily blog which is read by thousands nationwide from individuals to professionals at www.realinvestmentadvice.com.

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