Any trepidation caused by the U.S. Fed’s completion of QE for has been relieved almost immediately by more QE overseas. The surprise move by the BOJ overnight seems coordinated. It seems that our financial overlords were dissatisfied with the sideways action in global equity markets since Wednesday’s FOMC meeting and concluded that the financial Matrix that we have lived in for almost 6 years could get a bit glitchy without the appropriate prodding.
I get it, don’t fight the Fed, or the ECB, or the BOJ. But at some point the reality of the world’s financial state has to sink in when it’s obvious that it is unsustainable without central bank intervention. While many economists feel that the FED’s statement marked an upgrade to their view of our economy, their unwillingness to lay out a course towards higher rates in my mind signifies just how delicate footing they feel we are on at a time when the global economy appears to be at risk.
I would also add that the continued move in the Dollar vs the Euro and the Yen is likely to be a significant headwind to U.S. corporate profits in the coming months, possibly offsetting any pick up in demand in the U.S.
I know I sound like a broken record. But the last couple years has been a one way train that has not offered many two way opportunities but at some point soon that will end. And though it has not been the easiest environment for traders like ourselves we have done our best to adjust to one of the most persistent volatility crushes in the past 20 years.
Our mission at RiskReversal is plain and simple. Help investors/traders understand the alternative ways to express their views in the markets with an eye towards capital preservation. We are NOT here to be cheerleaders for the markets. We think we have created a fairly unique product that does not live or die with bull or bear markets, or whatever global policymakers are deciding at the moment. We hope you do too.
But I would sum up with this. I find this artificial financial reality that we are currently in nauseating and as a rational actor I am not sure how it can end well. But in the meantime, if the BOJ and the ECB are going to keep the party going, then just keep raising your stops on your long stock positions and add a little protection along the way when things are starting to feel a bit overzealous.
We’ll be offering some portfolio hedges in the next couple of days as it sure seems like the BOJ news, combined with the end of the year for mutual funds, could end up being a short term reversal area near previous highs.