When I first started investing with my own hard-earned money so long ago(2003, yeah I'm young-ish), it was all about fundamentals. I read and re-read a company's quarterly and annual reports over and over again before I put one penny in. I would read their main competitors reports. I would try to predict growth rates and really dive into the insiders of the company to see if they had what it took to run a good business. After all, this was my retirement money and I needed to know it would grow with me. I could rattle off the balance sheets of a hundred companies within a very tight range of accuracy.
What I never considered, ever, was what the Fed was doing. I was never too concerned about the forex rates, the fed funds rate, the price of gold, or whether the economy would even be around the next year. I knew Greenspan supported low interest rates, but never saw it as a systemic risk.
Now, I read quarterlies, but it doesn't really hold much weight with me anymore. Now, I am so focused on exchange rates, the Fed and the price of gold. Now I am so focused with the amount of liquidity coming in or off the board. Now I don't even wondered where the company will be in five years. No company can write its own destiny anymore. Each and every one is dependent on the whims of a madman with control of our entire livelihood.
I don't invest for the long-term anymore. I can only gamble. Yet, I am like everyone else. All I am worried about is turning a profit on a trade so I can buy into physical assets, at some point. I truly think this is where many of us are at. We know its all BS and will end badly, but we must make what we can now and assume we are the smartest guy in the room and will jump ship at the right moment.
Now that I have digressed, I will jump back onto topic. The Fed will make, what is conceded, will be an earth-shattering announcement of a new fresh round of QE. They have hinted and used every media outlet possible to hint and see the reaction. MAKE NO MISTAKE, everything you have read in the media from the Fed was contrived and it's purpose is to manage expectations and anticipate reactions.
So what can be concluded? They have built up such a following of people who swear this QE will be AT A MINIMUM $500B(that's really the lowest credible estimate I have found). They tanked the dollar just with rhetoric. They goosed the market just with the hint.
Here is my guess. They use extremely strong wording that they are willing to float more new cash out there to buy various securities and continue reinvesting any proceeds into treasuries. I do not think they will make a fresh allocation for treasuries. They will however be willing to make fresh allocations for CRE and MBS.
I think that no matter what they say, there will be a "sell the news" moment on long-dated treasuries. That is why I am holding most of my 34 TBT NOV calls(I sold some of them).
I think their goal will be to manage expectations and not give any other country any reason to panic by imminently announcing trillions in new QE, but at the same time broadcasting they will jump right in if the condition call for it. This way they keep the foreigners and bears at bay.
The dollar will jump, the markets will take a fall. Gold and silver will enter a short downward cycle until December(Dec will be very interesting in gold and silver). Bought SLV 22 NOV puts as insurance, in case they take a giant dump.
Remember around this time last year? The USD was on a huge downward cycle and everyone thought it was just gonna get crushed. Then it monkey rallied up a good 15 percent or so. This certainly is shaping up to be an inflection point. However, I don't think they want to kill the USD any more than it has been.
The banks are a giant wildcard now. They could be the straw that really makes things interesting. I am assuming they manage to avoid this fiasco getting too out of hand. However, I am betting they take a beating in the mean time. I am curious to request my original docs from my loan processor, just to see if they can come up with it or not.
I'm picking FAZ call options to ride that possibility. If the banks take a hit, FAZ will run out of control. FAZ is leveraged to begin with, using FAZ options is AIG-risk levered. Just wish I was TBTF.
OT: WAMPQ brought a smile to anyone's face who owned them this week. We saw it hit 50, before settling around 40. I expect the variance to increase in the next couple weeks and will not be selling 1 single share.
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