From the May 2014 issue of Futures Magazine • Subscribe!

How markets learned to ignore QE nuance

The only thing we have to fear

An old Wall Street adage about investor behavior in bull markets notes: “You either have to wear ‘em out or scare ‘em out.” It turns out the talk of QE tapering in mid-2013 was the scare tactic. Interestingly, it did not work as much on the supposedly riskier equity market as it did on the more sedate and lower loss-potential bond markets. 

Within the bond markets, the buy-and-hold investment-grade and the plaything high-yield markets acted very similarly to the Treasury market.

The stock market planned ahead and realized the Federal Reserve was not going to end monetary stimulus and risk the one demonstrable success from ZIRP and QE: higher asset valuations. Each change in communications policy fell on increasingly deaf ears, as well it should have. 

It would seem all traders should add one more piece of equipment to their technological setup: A good pair of earplugs. 

The best thing for you to do with all of the official drum-beating is ignore what has been alleged to be the most important environmental variable of all, monetary policy. The Federal Reserve’s increased transparency means we are doing a better job of seeing through them.

Howard Simons is president of Rosewood Trading Inc. and a strategist for Bianco Research. Reach him at

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