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Bernanke Put Impacts Usd Correlations

Jan. 21, 2011 11:44 AM ET2 Comments
The LFB profile picture
The LFB's Blog
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Proof positive was seen this week that the Bernake Put (read quantitative easing) is dominating global trade as the Fed monetizes debt in record number in an effort to create growth without inflation. The impact of buying back Treasury notes looking for Primary Dealers to ramp up equity holdings has created a buy-any-dip scenario that is floating equity markets higher, and in doing so is creating commodity inflation via the global commodity market being priced predominantly in U.S. dollars.

Selling Treasury safety and buying risk has impacted the Usd/Equity inverse correlation since QE 2 was launched in November 2010, with a period of time over the last three months that all markets rose in value at the same time without a hedge, along with periods of trade that equities moved lower at the same time as the Usd, which is an anomaly in the inter-connected global traded arena.
Bottom line reviews are signaling more strongly than ever that what used to be one 24-hour session of trade that needed to be hedged is now three 8-hour periods of trade that are more than capable of forcing changes to fair value on risk in a heartbeat.
Three percent moves in 30-minute periods of trade while Japanese markets are closed for lunch, as seen in gold, oil, and silver on Thursday, are more regular than ever before, and confirm that reactionary traders will dominate trade for the foreseeable future while investors still wait for the buy-and-hold strategy to break even from the last ten years of roller-coaster trade. Trade desks are running on low volume, which is not an impediment on the way up, and so long as the Federal Bank of New York continues to do the POMO bidding through until May there looks to be little reason not to buy the dips in risk markets.
The only threat to status quo as the central bank ponzi scheme continues along its merry way, floating equity values and creating food inflation, is that one rouge central banker reaches for the interest-rate hike button. At that time, whoever that turns out to be, will create a rush for the exits that will most certainly get Usd/Equity inverse correlations close to 100%.

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