Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

What Assets Perform Best During Quantitative Easing?


A look at a variety of assets to see how they responded to QEs and Twists.

Let's start off by seeing how effective QE was with respect to what the Fed was trying to accomplish. The Fed has a dual mandate of price stability and keeping unemployment low. The inflation rate during the QEs was 2.7%. That's too high.

The unemployment rate went up by 15.3% annualized during the QEs. That is also not good.

What else is the Fed trying to accomplish? Well the Fed has been buying bonds directly in an effort to stop the housing crash. Arguably one can rank lowering bond yields and raising housing prices as the No. 3 and No. 4 most important goals for the Fed. Using iShares Barclays 20+ Year Treasury Bond (TLT) as a proxy for bonds prices would suggest the Fed fails once again. Despite spending trillions on bonds, bond prices went down 9.4% on an annualized basis during quantitative easings. Why? Inflation concerns.

Quantitative easing didn't stop the real estate crash either. During QEs real estate was down 5.5% on an annualized basis.

So far the Fed is 0 for 4. What's next on their list? Probably stocks. Here the Fed finally gets on base with a 30% annualized return.

Are there any other goals the Fed is trying to accomplish? The Fed wants oil and commodities to stay low. While one can argue that this is part of the Fed's inflation mandate, the Fed wants housing to go up, which is the biggest component of inflation by far. In any event, oil went up 41.8% annualized during the QEs and commodities in general increased by 25% annualized. Not good.

It is clear that quantitative easing has been a near complete failure for the Fed. What to do? Stocks went up 30% annualized while commodities went up 25%. Within the asset class of equities, the more speculative Nasdaq and small cap Russell indices fared even better than the S&P 500. As for individual commodities, cotton was the big QE winner with silver also faring very well.

I have written quite a few articles since late March which have shown that when bond yields collapse (like they did), stocks always go up, commodities usually go up, and bonds always go down. The QE study offers similar conclusions. About the only difference is when bond yields drop, commodities go up about 75% of the time and during QE they have gone up 100% of the time. As for the short side, bonds continue to be the No. 1 play. However, shorting anything other than bonds and the dollar looks risky.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos