“Half the work that is done in this world is to make things appear what they are not.”
Commentary & Analysis
QE is like … a Helicopter baby, baby … I wanna ride.
Sorry, but the last two days of rising QE3 potential and consequent price action just made me think of a rollercoaster. And from there I found myself singing the Red Hot Chili Peppers’ version of ‘Love Rollercoaster.’ (Truly funky readers may prefer the original from The Ohio Players.)
But this one’s adapted for you, Ben.
Your love is like … a Helicopter Bennie, Bennie … I wanna ride. Yeah …
Your love is like … a Helicopter baby, baby … I wanna ride.
Ok, back to the ups and downs of the last few days. When the minutes of the latest FOMC meeting were released, traders chose to focus on those members who thought more monetary stimulus was needed. That seemed to drive up the markets. Added to that momentum the next day were Ben Bernanke’s comments, during his testimony, that the Fed would enact some form of additional stimulus if the recent economic weakness were to persist.
Wahoo – all is good again. No need to be worried. We’ve got a ticket to ride QE3.
But then yesterday Ben made some comments to insist that the Fed has not yet decided on additional QE measures.
Screech. Wait a minute – you mean to tell me that I bought into this market on Wednesday thinking that QE3 was a done deal and now you suggest it is not. Good grief, Charlie Brown.
“We are not proposing anything today. The main message I want to leave is that this is a serious situation. It involves significant loss of human and economic potential. We want to make sure we have the options when they become necessary.”
Following the short-term reaction to these QE-related headlines, it is clear that traders and investors are antsy to jump on risky assets. But are there enough antsy players to move the market? Pretty much the entire commodities market performed very well on Wednesday. But yesterday was different story as commodity players decided to actually think about what was going on after Bernanke softened his rhetoric.
Stocks, on the other hand, seemed ultimately less impressed by the news.
That actually doesn’t look so good for risk appetite.
The price action has not been as inspiring as many seemed to initially anticipate. But I doubt this is cause for real worry – Ben Bernanke is likely testing the waters, putting the feelers out. When the time comes to juice sentiment via rising equities, he’ll show his hand. But for now … he’ll probably be concealing his intent for a few more months … or a few more percentage points in downside.
After all we’re still one month away from the annual Jackson Hole mind meld. As you might recall, the Jackson Hole speech last year was what triggered the real QE2 speculation; and then the official implementation of quantitative easing began at the start of November. That timeline seemed to work well last year. And you know what they say: if it ain’t broke, don’t fix it.
As far as commodities go, I am watching four different ones to help determine how the market is digesting the latest signals from the Federal Reserve.
In the “We need QE3 or we need growth” camp are crude oil and copper.
In the “I’d like QE3 but might not need it” camp is silver.
In the “QE3 would be nice but I don’t need it camp” is gold.
Crude and copper are barometers of economic growth and/or risk appetite. Each were buoyed earlier in the week by QE-related comments, but faded as the hype subsided a bit. Gold and silver, however, did not fade; they traded strongly higher through the middle of the week.
Silver, being a sort of crossover between the growth commodities and safe-haven gold, may tell the story. Many attributed its parabolic climb earlier in the year to QE2. The way silver has behaved this week tells me that QE is very much responsible for silver’s price action.
Silver Futures, daily:
Silver has broken above key moving averages (50- and 100-day); but being range-bound for several weeks may discount the importance of these moving averages. In other words, the congestion of resistance levels offers several targets, i.e. the dealers may be working the price to fill stops above key levels. Thus, it may not make sense to bite too soon on this tasty-looking breakout.
But if you’re willing to hold silver and absorb some volatility, it may pay-off nicely. Why? Because silver seems to love liquidity and I’m not sure what’s going to keep the Fed from further easing. I guess I’m siding with Jimmy Rogers on this one! A poor payrolls report for the month of July may seal the deal for another memorable Jackson Hole rendezvous in August.
Who wants to ride?
You give me that funny feeling in my tummy. Ahhh, yeah, that’s right, huh Rollercoaster of Love Say what? Rollercoaster, yeah (ooh ooh, ooh ooh) Oh, baby, you know what I’m talkin’ about Rollercoaster of Love (love rollercoaster, child) Oh, yeah, it’s Rollercoaster time Lovin’ you is really wild Oh, it′s just a love rollercoaster Step right up and get your tickets!