Sink or swim

I would actually sink but that`s not what I want to talk about right now.

The financial news and headlines are swamped with the upcoming FOMC meeting and everyone is trying to figure out whether the QE tapering is happening. I think there are a few possible scenarios and consequences:

  1. Bernanke will calm the market down by saying everything stays the same for now because the improvements in the US economy is fragile and they keep monitoring the indicators
  2. The tapering is not happening but is indeed imminent and they prepared a plan which contains a series of steps taking the QE cushion out of the system gradually in the mid future and the investors ought to get used to the idea of not having the FED on the market.
  3. The FED is taking steps to reduce its` market presence

The first one would only mean the show goes on as per usual and a relief rally might come. The latter two however might brake the sentiment and both of them would mean the least resistance is on the downside. Either way, a retreat in monetary policy is inevitable and will happen sometime soon just – at least – to test the markets so I`d prepare for increasing volatility and higher yield environment.

Another aspect of this topic is the potential USD appreciation because – while the S&P have been side-walking from the end of May – it has significantly depreciated against the euro, but now the ample supply might be about to end.

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