I’m back after a 1 month hiatus. I got married two weeks ago to my beautiful girlfriend of 5 years and now wife Lauren, and we were on our honeymoon in Costa Rica last week. Costa Rica is an amazing and beautiful country if you ever get a chance to go!
Now to the markets.
Things have been slow for a month now. For the most part, I think the markets are simply waiting for the Fed to announce the next round of Quantitative Easing (QE 3). You can see how the Volatility Index (VIX) climbed going into last week’s Jackson Hole announcement even though stocks didn’t budge. A rising VIX means investors expect market volatility to rise moving forward, and a major Fed announcement would definitely send things moving.
VIX
S&P 500 
I highly doubt the Fed announces any formal program next week after their meeting either. They’ve been very careful with their wording to make sure everyone knows Quantitative Easing is still on the table without actually saying when/what they might do. However, as far as I can read into it, I don’t see them formally announcing a plan of action unless the markets are under duress, which is clearly not an issue right now (this doesn’t necessarily mean they’re not doing things behind the scenes though…). I think the biggest announcement next week will be from Europe with the German Supreme Court ruling on the bailout other European nations. If positive, this could send things higher.
Another interesting thing I’ve noticed is that Treasury bonds have been climbing (yields falling) even though the US Dollar quietly continues to slip.
10 year Treasury yield
US Dollar chart
To me, this says that someone is buying Treasuries, but not as a safe haven. Typically during times of panic money flows into the United States seeking the safety of both Treasury Bonds and the US Dollar. If we were seeing a rush of global panic, the US Dollar would be climbing with Treasuries. We know it’s not retail investors – they’re seeking yield. It’s not Hedge Funds needing a place to store extra cash because they’ve been getting crushed all year… could it be the Fed buying Treasuries to keep yields low without a formal announcement (i.e. secret Quantitative Easing)? Gold looks to be saying this might be the case with the recent breakout after a 1 year lull of consolidation.
Gold
As long as the Fed is printing money to buy bonds, it makes sense to own stocks and gold.
I’ll give an outlook on bonds next week, so stay tuned!
-Nick
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