Bad News Bulls: Investors Should Begin Paring Back Risk

By Oliver Pursche  SEP 24, 2012 11:35 AM

There's maybe 2% to 4% more room for "giddiness" in the market, but the stage is set for a sell-off.

 


MINYANVILLE ORIGINAL There’s no other way to say this: QE III, being actively debated by the Federal Open Market Committee (FOMC) as I write this, is a bad idea.
 
Quantitative easing III (or as I like to call it, QE Infinity) is usually talked about in terms of the risks it poses for inflation. And while this risk is palpable, it’s not near term. The near term risk is that in finally admitting the economy or the recovery – take your pick – is weak enough to require further intervention, the Fed has set the stage for a sell-off in stocks. This admission, in and of itself, could be a catalyst for a sell-off in stocks. 
 
You might be tempted to call that a reach.  And perhaps it is -- but if so, there’s plenty of other stimulus to send stocks down, in my firm's view. To wit: 
I don’t believe investors should short this market. There’s still some giddiness left, perhaps as much as another 2% to 4%. However, I would advise investors to start paring back risk.
 
The only positive note from this mess is that commodities could benefit from a sliding dollar. Note that the euro is hovering at multi-month highs, trading above $1.29.  Here’s some stocks that could benefit from QE Infinity.
 


Follow Oliver Pursche on Twitter: @opursche.
No positions in stocks mentioned.