The end of cheap money is nearing, Uh-Oh, now what?????

Discussion in 'Wall St. News' started by S2007S, Apr 8, 2011.

  1. S2007S


    Most of the idiots who believe this to be a turn around in the economy are only being fooled into thinking it is, all its been for the last 2 years is smoke and mirrors, yet NO one wants to believe it. Cheap money is what has pushed equities higher, its also propping up the gdp to make you think there is actual growth in our economy when in fact were still in a recession and still in this credit crisis. So now what, the end of QE2 is ending and everyone is starting to cry once again, why? Because the market has become to dependent on it, the market only knows cheap money and trillions that have poured in to keep moving, what happens when all this ends or will it end...I think Bubble ben bernanke is getting ready for QE3 because that's the only way to prop up this economy that doesnt look like its going to grow anytime soon on its own.

    Investors Start to Worry About End of Cheap Money
    Published: Friday, 8 Apr 2011 | 2:37 PM ET
    Text Size
    By: Reuters

    The end of super-cheap money from the Federal Reserve is trumping corporate earnings results as a key risk to hedge for stock investors.

    Investors are worried about how withdrawal of the Fed's monetary support, expected in June, will affect shares.

    Investors are looking forward to fewer price gyrations during this earnings season but are worried about how withdrawal of the Fed's extraordinary monetary support, expected in June, will affect shares.

    Normally the earnings reporting period is prone to ups and downs, but strong profit growth should keep volatility subdued.

    That's lessened the cost of hedging risk, and some investors have identified the end of the Fed's quantitative easing effort as something to hedge against. Some are willing to pay more to protect against declines a couple months down the road.

    "It looks like all the markets from equities to currencies are pricing in some sort of the continuation of the Fed's quantitative easing policies," said Joe Cusick, senior market analyst at Chicago-based brokerage firm optionsXpress.

    "While that gets debated between now and June, we are going to see some potential for renewed short-term volatility," Cusick said.

    Aluminum maker Alcoa [AA 17.8887 -0.2313 (-1.28%) ] will unofficially kick off the U.S. earnings season next Monday. Profit reports are expected to support U.S. stocks with first-quarter S&P 500 earnings are expected to show 11.5 percent year-over-year growth, according to Thomson Reuters.

    Investors will be scrutinizing early reports to get a clue of the sentiment for future earnings guidance and the economic landscape for the last two quarters of the year.

    "The prospect of good earnings in a period of still-low interest rates is supporting equities, even as the European debt crisis, higher crude oil prices, and other events overseas add some earnings risk longer-term," said options strategist Frederic Ruffy.

    The Chicago Board Options Exchange Volatility Index, a barometer of investor anxiety known as the VIX, is at relatively low levels. It also indicates S&P 500 index options are getting cheaper in the near term.

    The 10-day historical volatility for the SPX dropped below 7 percent on Thursday, a sign of very calm markets, compared to 19 percent two weeks ago.

    The VIX was lately trading at around the 17 level, after rising to 31.28 on March 16 in the aftermath of the Japanese earthquake crisis.

    With the stock market near two-and-a-half year highs, in-line earnings may not be rewarded as they have been in past earnings cycles and could lead to dissapointment.

    Still, the expectation of gradual tightening of Fed policy is potentially more worrying. The Fed is in the middle of a $600 billion bond-buying program that has been credited with helping to underpin the stock market's rally. Investors are starting to buy protection against future headline risk as a result.

    VIX futures are pricing in some fear in the back months.

    Contracts from June to November expect the VIX to rise to above a 21 to 24 reading in the second half of the year.

    "Near-term options as measured by the VIX are getting less expensive but we see buying demand for further out-of-the money puts in the SPX as a hedging tool," said Chris McKhann, an analyst at stock and options website

    This is also reflected in the CBOE SKEW Index, which measures demand for out-of-the-money puts compared to out-of-the-money calls, McKhann said. The greater the skew, the more investors are willing to pay for the out-of-the-money protective put positions than the upside call positions.

    "This means those seeking protection for the downside in equities are likely best served by buying near-term at-the-money put options, which are relatively cheap and selling out-of-the-money puts—taking advantage of that skew," McKhann said.
  2. dollar index is ugly. USD is sinking fast.
  3. What can we do to get rid of S2007S and his hysterical rantings on this site ? The guy seems constantly upset about something and thoroughly unable to trade anything.

    We have no QE in Canada but our market is outperforming again and our economy is getting stronger ( rise in building permits, decent GDP, lower unemployment, strong earnings reports, huge increase in m&a interest in Canadian companies ). This must be awfully confusing to the people on here who believe QE moves the market.

    Could it be that earnings, dividends, and m&a move markets like they have for decades ? Why is this such an elusive point for some on Elitetrader ? Why are hysterical rantings about the economy the norm here ?

    Market performance and Economic performance are two totally different beasts. People seem awfully confused about this, especially this S2007S guy. He's crying up a storm every week, hoping for a market correction that won't happen this year.
  4. ouch ....forget trading I'm moving cash out of USD into other currencies and ETF PMs. We are at tipping point IMHO.
  5. Hallmarks of an economy driven on money pump is investment in non-economic assets because of a fear of devaluation of cash. Better to lose some than lose all is the thinking. Think we are there yet?

    Moving out of bonds and cash into equities might be a sign, but its hardly widespread. And dependent on QE III - without that, deflation might, (not will, but might) raise its ugly head again.

    June-Sep will be interesting, that's for sure.
  6. the1


    The Fed is trying like hell to get the prices of houses turned around because so many houses are on the books of the banks. Unfortunately for the Fed, and the banks, the only thing that isn't inflating is the price of a home. Boy! Anyone been to the grocery store lately? Oh and energy aren't counted in inflation so inflation is still really, really low. 8.8% unemployment is another joke.
  7. ElCubano


    In weds issue of the Miami herald there was an article which made reference to Real estates shadow market...About 500k homes which are not even listed and thats just in Florida. These homes will eventually find its way into the real market. There are tens of thousands of people living in their homes without paying their mortgage..those will also eventually work there way into the real market....
  8. Exactly, not even counting the number of homes fraudulently foreclosed on, the number of homes will clouded title, etc, etc..


    Once again, the Fed proves incredibly incompetent at generating their "good" inflation while avoiding the "bad" inflation. Instead, we get wholesale morons like "Nine-Ender" who talk about stocks soaring while ignoring dollar debasement, precious metals soaring and commodity prices going parabolic.
  9. the1


    Sounds like there's a virtual endless supply of homes. But then the banks get to mark the value of a house to whatever they want. It's when they sell it that they have to recognize the real market value. That's probably the reason there is a shadow market. If the banks sell too many homes at low prices they won't have enough income to offset the losses. Sounds like this problem is going to persist for a long, long time.

  10. Yeah, that is the jist of it. Spoon feed out the invetory, often thru backdoor channels, not to upset the equilibrium of prices or their own form of "price fixing" via a lack of transparency. I've seen first hand houses I knew to be in foreclosure for long periods of time completely hidden from the market.

    Then you give the realt-whores the opportunity to cheerlead a "dwindling supply" and imminent "rent hikes" to the remaining brain dead masses to sucker them into another shit loan that will have them in the crosshairs of the local government looking for increasing property taxes for years to come.

    Complete sham.
    #10     Apr 8, 2011