Skip to main content

QEII Announced: Now what ?

Much awaited QEII announced by Fed under which Fed is planning to buy $600 Billion worth of short-term treasuries. While this is definitely essential to support recovery and overall economic, immediate impact was sudden rise in 10-year treasury yield. These yields have jumped from low of 2.33% to 2.96%. That's HUGH jump within 2 weeks. I am not surprised with this rise. What I was surprised was sudden rise.

Let's understand potential impact of QEII in next 6 months and how one can position to make investment gains:

Possible impact of QEII:

  • It should achieve its intended result which is to support economy. It should grow between 2 to 3% in Q4VY2010 and closer to 3% in first half of 2011
  • Unemployment should start inching downwards but not by too much. I still see it hovering between 8-9% for most of next year which is not good for US. But Fed can do only so much about it
  • Housing prices should stabilize at current levels. May start to see rise of less than 1% in prices in some markets
  • Stock markets should maintain their upward bias and slowly inch towards 11500-12000 for DOW
  • 10-year treasury yields would start inching above 3% but not by too much. It may come down around 2.6-2.7% in short term. After May when all of QEII $600 billion buying is over, 10-year yield would be above 3% for good (unless economy slides back to recession which is unlikely)
  • Emerging markets (both stock and bond) should continue to do well due to cheap US $$ and China / India demand 
  • Commodities would hold up to current levels and may go up by another 10% or so. Oil would remain between $70-100 and Gold at $1300-1500.
Possible investment ideas as play on QEII:
(caution - following investment ideas are extremely risky due to 3x exposure and should be tried only if you are comfortable with such risk profile)
  • DRN at around $45: Betting on recovery of REIT sector
  • EDC at around $35: Betting on emerging markets
  • ERX at around $42: Betting on commodity (to be specific on energy sector)
  • TMV at around $36: This is slightly long-term bet that yields would eventually rise. This is inverse bet. This has direct co-relation to 10-year treasury yields (or SBND at around $22 which has direct co-relation to 25-year treasury yield)
All above investment ideas are ETFs which are most suitable if one can correctly predict macro-economic trends.  Let's see how these macro-trends turn out to be in 2011.

Looks like Irish would be thankful to EU and IMF for bailing out their nation and banks next week.

Happy Thanksgiving !

/Shyam

Comments

Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more

The Politics and Gamesmanship of TikTok!

TikTok is less than 3 hours from going dark on USA's east coast if TikTok owner Bytedance (and Chinese Government) follows thru its "bluff" to honor the law " Protecting Americans from Foreign Adversary Controlled Applications Act" which goes into effect on Jan 19, 2025. And suddenly there is lots of politics and gamesmanship around TikTok.. Let's look at the players and their positions US Congress: The " TikTok Ban" law was passed by congress with bipartisan support and coincidently it goes into effect one day before new administration takes charge. Everyone knew the exact date and time of oath taking ceremony of new President...but maybe the congress did not think that there would be change of President and did not bother to put effective date post new government taking charge...that created a window of 36 hours of "law being in effect" unless... President Biden: Biden himself did not think that he won't be President for 2nd term. S...
Post a Comment
Read more