How’s That QE3 Inflation Trade Working For You?

It’s been a little over a month since QE3 was announced. Of course, QE3 was met with much disdain (by the hard money crowd) as it was met with much welcome (by the pro-aggressive monetary policy crowd). While it has only been a month since QE3 was announced by the Federal Reserve ($FED), the “inflation trade” has been disastrous in the short term. Anybody long risk-assets is in the red right now, especially if it was in the commodities market. Anybody long “risk-off” assets, is likely sitting positive right now.

Just check how some of these stuff have done. The US dollar ($USDX), and long end of the treasury curve (the 10 year note and 30 year bond) have done real well while most commodities (with the exception of Natural Gas) have done horrendous or nothing constructive at all.  The Commodity Index ($CRB) is also down from a high of 321.36 on September 14 to 306.55 on October 12.

1 Month performance (as of Oct 14)


As for Inflation expectations? The 5 year breakevens, which is one measure of inflation expectations, are down from the peak from September 14 (the day after QE3 was announced- which also happens to be the top of the stock market YTD so far). And as for consumers, they don’t seem worried about inflation either as the 1 year and 5year  inflation expectations (from the Michigan Consumer Sentiment report) fell to the lowest levels since March 2009! Clearly the $FED has not convinced the public it wants higher inflation (of course, this is a flawed transmission channel that is frequently advocated, but I’ll save that for another blog).




The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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