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QE-3 On The Horizon, Or Just Another Rumor?



August 04, 2011 – Comments (0) | RELATED TICKERS: CVX , COP , SCCO

This morning, the U.S. Dollar Index is soaring sharply higher by $1.03 to $75.08. Traders and investors are now starting to bet that the Federal Reserve is going to begin another round of U.S. Treasury purchases called quantitative easing or QE 3. It does seem a little early for the central bank to begin another round of quantitative easing because they just ended the last round of quantitative easing in late June. How much more ammunition does the Federal Reserve Bank have right now if they do not buy U.S. Treasuries? Many investors believe that the Federal Reserve might be out of bullets.

Almost every investor and trader expects another round of quantitative easing by the Federal Reserve Bank at some point in the future. If you look at past history, the Federal Reserve usually spreads out their quantitative easing programs. Ironically, it was the same time last year that the major stock indexes came under heavy selling pressure. In August 2010, Ben Bernanke announced his QE-2 program in Jackson Hole, Wyoming. Will the Bernank give us an encore presentation this year in Jackson Hole? Well, believe it or not, some traders are starting to bet that another round of quantitative easing will be announced soon.

When the U.S. Dollar Index trades higher the major stock and commodity indexes will usually deflate and trade lower. This morning, leading commodity stocks such as Cliffs Natural Resources Inc.(NYSE:CLF), Southern Copper Corp.(NYSE:SCCO), and Freeport McMoRan Copper & Gold Inc.(NYSE:FCX) are all declining sharply lower on the back of the stronger U.S. Dollar Index. Energy stock will also deflate quickly when the U.S. Dollar Index surges higher. Leading energy stocks such as Chevron Corp.(NYSE:CVX), and ConocoPhillips(NYSE:COP) are under heavy selling pressure this morning. Traders should expect further declines as long as the U.S. Dollar Index remains strong today. Should the U.S. Dollar Index decline or sell off then the markets may bounce a little.

Nicholas Santiago

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