Brace Yourselves, QE is Coming
The Stock market is at all time highs (again). But safe haven assets are on their highs as well. Gold is on its highs of the day, Bonds are on their highs. But the Vix is getting monkey hammered. Can someone tell us what is going on? - by Soren K
The above cartoon makes sense to a point. But we need more than a zoloft prescription excuse for the market's behavior
The market is telling us the Fed will raise and ease at the same time it would seem. In what instance do risk off assets and risk on assets both rally? The answer is when the Government does a round of Quantitative Easing. During a QE event, The Fed prints money which is then used to buy its own bonds. The concept is called "sterilizing the stimulus". Here it is more succinctly:
- Stocks rally in anticipation of Fed money printing with no where else to put the money- easier for banks to do this than to make loans to the public
- Bonds rally because they will be bought by the Government- First noted on Aug. 10th in "Did Pimco Just Front Run the Fed?"
- Gold Rallies because this is all inflationary and ultimately a debasement of our currency- but since it is well off its all time highs, the Fed isn't worried yet
Risk on/ risk Off is the wrong metric to use
- Risk assets are at all time highs, implying No fed hike.
- Bonds are at their highs implying aversion to risk traditionally
- Gold is strong implying future inflation and weaker dollar
- the ViX a risk off tool is at its lows.
- something is not right
This may be a better metric:
- Gold is NOT a risk off asset. It is money. In a global marketplace, there is and will be only one form of currency uniformly accepted across borders and time, Gold. As stated yesterday by Trump's chief economic advisor
- Bonds are not a safe haven anymore and what once was an asset with a 2 year discounting mechanism, now has a 2 month time horizon.
- Stocks are not tied to the economy- much to the chagrin of the Government. But that wont stop them from citing it as an indicator all is well.
From Zerohedge
Stocks at the high of the day, Treasury yields at the low of the day, gold at the high of the day... someone is wrong or the 'QE trade' is back...
Buy everything stupid!
More safe-haven buying...
Even crude is sliding. But VIX is extremely noisy with 3 mini flash crashes overnight...
Here are the probable reasons for todays moves and recent positioning by players
- Bonds at 1% are not safe havens. They are being bought to front run anticipated QE- 1 to 6 months horizon
- Stocks are the targeted asset to benefit from QE.- 2 minutes to 2 month time horizon
- Gold will also attract some money as an inflationary hedge- some buy for a 5 yr time horizon ( they're right), some buy for a 5 minute half-life (they'll get chopped up)
- Vix is getting crushed- No one needs hedges if the market is going to be underpinned by Fed Stimulus- Hedging is for gardeners especially after all that wasted Brexit money right?
The markets certainly took Fischer's Hawkish statements seriously for a day!!
Conclusion for Now:
We have no doubt a QE event is coming. it will most likely be precipitated by a crisis that gives the Fed an excuse to do its worst (best?). It will also likely occur after other countries have adopted permanent monetization of dept aka Helicopter money. But it is coming. And that crisis may actually be instigated by the Fed itself with a rate hike before opening the flood gates. Who knows?
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