Now, with the Fed being the last of the true Masters of the Universe to reveal their cards, its two thumbs up for risk assets all around. After QE1, QE2 and Operation Twist, Ben Bernanke finally whipped out his secret weapon that’s been bulging uncomfortably from his front pocket for so long – The Open Ended Bazooka, or OEB. Earnings, sales, GDP-figures, productivity, inflation, nothing really matters when trying to dissect and calculate fair value anymore. It’s all the about the printing presses now, and has been for a long time. The ECB’s contribution is of no less consequence: LTRO, OMT, OMG and WTF. Ever the Italian, Mario Draghi gallantly promised to do what it takes, try every move, explore every nook and cavity to get the fat lady off.
You can bitch and moan all you like, but at the end of the day, it’s just another input in the moving target that is the market. And if you haven’t adjusted accordingly, well, better luck next time. Barry Ritholtz’s blunt, but oh so true post, spelled it out thusly:
“I see this unfortunate tendency to go full on wonkasaurus too often amongst equity traders, bond managers, prop desks. They seem to forget that their job is to manage risk and seek opportunity. Long digressions into why the Fed is misguided or Congress has failed are beside the point. That should be the starting point of their analysis, not the end point.
The rest of the analysis must be: If the Fed is misguided, how shall we position ourselves?”
Never mind slowing of the BRIC’s, near death of the PIIGS’s, crushing debt and world wide synchronized swan dive, the market knew it all along and swooned higher. How long it will last and how far it will go is anybody’s guess. Perhaps this is what needs to be done to get the economy going but we’re now entering new territory and with that comes risk. All the previous boatloads of cash doesn’t seem to have done the trick, what if even more of the same doesn’t either? And if it doesn’t reach it’s intended target, where does it all go? Well, that’s an easy one to answer. Risk on baby, risk on!
From the FT: QE3 serves up a post-summer pop
“The Bernanke effect may not wear off quickly. The Fed chairman had made clear “that he considers the stock market a crucial mechanism for the transmission of monetary policy,” says Quincy Krosby, market strategist at Prudential Financial. “That means the rally carries on. Shorting the market would be betting against the Fed, against Mario Draghi and perhaps the Chinese state. That’s a bet that most traders simply cannot make.””