Global Financial Crisis, QE1, QE2, What's next? Part 1

From an economic point of view, the GFC was unavoidable. This helped to balance/check the whole financial system. In order to avoid a Great Depression after Y2K, the world’s largest economy, the US started QE1 buying toxic wastes and expanded QE1 in March 2009.

Let’s have a look at the effects. With QE1 (large amount of liquidity) and LOW interest rate environment (less than 1%) in the US, UK, Europe and Japan, the obvious had to happened. In a situation where there’s a lot of liquidity and interest rates being pathetically low, global investors will tend to seek higher yield assets. Carry trade begins! (The higher yield assets being commodities like Agriculture, Metals, Precious metals, Oil, commodity currencies like the Aussie, Kiwi (NZ) and the Loonie (Canada)).

However, QE1 does not prove to be efficient as the Unemployment figures nor the housing in the world’s largest economy recovered. With the speculation and eventual announcement of QE2 during the second half of 2010, there’s a tsunami of liquidity globally. Money and inflation are exported (felt most in China and India) to most parts of the world. Carry trade intensifies.

By now, everyone knows that the exit of QE2 will end in June 2011 and a negligible percentage of QE3 showing up, carry trades had started to unwind. This is evident in the precious metal, Silver and Energy, Crude Oil – no thanks to the increase in Margin for Silver and Energy. (This just exponentiated it’s decline.)

The following is the main point of this sharing. What I fear most is the end of the QEs’, the degree of the unwinding of the carry trades, meaning, how the higher yield assets like the Aussie, Kiwi, Loonie, commodities like Gold and Silver were to unfold.


Since the beginning of May, higher yield assets like equity related indexes, neither commodities nor precious metals were attractive at all. On the other hand disaster.

What I would do now is to monitor and analyze, how and what the degree of the pullback of liquidity will affect the unwinding of carry trades. In layman terms, if no caution (strategy) is implemented and rolled out smoothly; be very very careful where you put your investments from now on. However, if all the liquidity is pullback in a timely an efficient manner, this would cushion the fall.

I would strongly advise that you check and discuss with your financial consultant what his strategy will be in respond to this financial climate on your investments!

I do not have a crystal ball. Neither has anyone. Speculating the future (or giving tips) at this point is rubbish. We just have to take one step at a time monitoring the technicals, fundamentals and the cattle’s mentality in reaction to events.

Bookmark this site - For timely and constant update of the financial markets. After which, pro-active (or reactive) management in a timely and efficient manner should assist you to limit your losses and ride the waves when the market reverses Northwards!
The continuation of this article, Part 2, is posted  June 9^th 2011

In relation (my earlier article) to the Art of War teachings, the climate is not conducive for War. My strategy as the General will be to pullback and delay the attack as long as possible until the climate is more favorable to my advantage for the next Attack.

(As I am new to this site, I would like to hear your queries or your concerns on any financial matter, for e.g. risk management, investment planning, etc. This would help me to plan and roll out articles to the majority)