Hand on the Trigger, With No Bullets

Every time Fed chairman Bernanke opens his mouth, the markets act like a 5 year old at their birthday party. They will laugh, they will cry. Except unlike a 5 year-old’s birthday party, the market doesn’t always get what it wants.

Last month, investors practically lost their minds when Bernanke announced the Federal Reserve is looking to bring quantitative easing to a halt by the end of the year. The result? Major indices and managed futures experienced multiple risk off days.

But the roller coaster wasn’t over…

Chart Courtesy: Finviz

This week, Bernanke and the bankers had a change of hearts, stating the end is in sight, but it won’t happen until mid-2014…. Maybe.

Whether or not the Federal Reserve chose to delay the end of QE3 because of the reaction from the markets will remain a mystery.

But we do know that this makes our lives difficult. Typically, major moves in the markets are just what we like to see, because that’s where managed futures thrives like in 2008 and 2009 {past performance is not necessarily indicative of future results.} However, the increased transparency of the Federal Reserve is starting to give managed futures investors whiplash.

Prime Example: 30 Year Bonds are up 1.1%, Gold is up 2.9%, all but erasing losses after Bernanke’s first comment, and the U.S. Dollar Future has plunged by -1.6%.

Right about now, you’re probably thinking if the Fed broadcasts the end by the middle of 2014, then normalcy will resume, and and investors as well as CTA’s will have a knowledge of the future, so to speak. Not quite.

Towards the end of Bernanke’s press conference yesterday, he quipped, “I think that’s something that might happen,” referring the end of the QE3.

We feel fairly confident that come the end of this month, we will be seeing a more Risk On/Risk off days than in June. Today is just one.





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