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Big Asset Shifts: Bonds, Gold, Dollar, EM

Kevin Cook

I made a plan at the beginning of June to play the range trade into the biggest macro event of the year, the FOMC. That meant buying near 1600 and selling near 1650. I didn't follow that plan very well.

And now I'm starting to see "asset shifts" that I've seen before, which usually signal bigger volatility that is not good for stocks. In short, the probability for re-visiting S&P 1550 (or lower) has increased.

Where did I see these shifts before? When I traded FX full-time from 1998 to 2008, I often saw these shifts on or near big FOMC days.

Stocks, bonds, currencies, and gold (and other commodities like crude and copper) would all make big "unexpected" moves as the coils of correlation and complacency that had wound so tight suddenly let loose.

And while the flight to bonds may have been the safety trade under QE-Infinity, today it's all about the US dollar. Got to have 'em. Sell everything and go to cash.

Here are a few charts for gold, bonds, and Emerging Markets that tell the tale of asset shifts and higher volatility to come. By the way, in the gold one, I'm just showing off that I played it for some dough. But it was small position, so just ignore me.

So, what was the big deal yesterday when Bernanke spoke? That he basically confirmed for markets we've seen the peak in QE. It's all down hill from here.

And this has been the danger all along since we started to talk about tapering -- that the bond vigilantes would rush quickly to price in the Fed's inevitable exit from the bond-buying business. 

I have a radical suggestion: Bernanke is now irrelevant. One foot off the pedal, and one out the door, the market will take over from here, thank you.

What say you? And let's hear where and when you are buying stocks next? S&P 1550? After earnings season gets rolling next month?



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