The Unwind Of QE Means The "S&P Should Be Trading At Half Of Its Value", Deutsche Bank Warns
Submitted by Tyler Durden on 10/03/2015 17:09 -0400
In his latest weekly note, DB's derivatives analyst Alekandar Kocic focuses on the interplay between US inflation expectations and US equities, and points out something curious, and very much spot on:
That was the case for the first 5 years of "unconventional policy" until some time in 2013. Then something snapped. Kocic continues:
Which brings us to the punchline:
Wait, the S&P should be trading at 900... or even less? Yes, according to the following Deutsche Bank chart:
Only one question remains: which breaks first - do inflation expectations surge higher, soaring by some 150 bps to justify equity valuations, or do equities crash?
Is reconciliation likely – and, if so, in which direction? Are we returning to the pre-crisis world, or we are in a completely new regime?
The answer will come from none other than the Fed and by now, even Janet Yellen knows that one word out of place, one signal to the market that the QE-inflation trade will converge with stocks crashing instead of inflation rising (which, unless the Fed launched QE4, NIRP of even helicopter money now appears inevitable), and some $10 trillion in market cap could evaporate overnight.
Is it any wonder that Yellen is exhibiting "health issues" during her speeches: the realization that the fate of the biggest stock market bubble lies on your shoulders would make anyone "dehydrated."
In retrospect, Ben Bernanke knew exactly what he was doing when he got out of Dodge just as the endgame was set to begin.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.