QE2 - Today's the Big Day

Well, there is QE2 and then there is The QE2....I think the one pictured here to the left is infinitely more desireable, but the consensus opinion is that Bernanke's version of QE2 is all but guaranteed later this afternoon.  The only question remaining is how much will it be?  Consensus seems to be leaning towards $500 Billion over the next 6 months, or just shy of the $100 Billion/month that I spoke about in my previous post, but keep in mind, QE2 is incremental to any POMO activities, which have been going off at a rate of $20 - $30 Billion per month since September, and are expected to continue in the near future.  

So what are the implications?  

As I previously posted [here], I believe that today's FOMC announcement has a 66% chance of being negative for stocks in the short term.  For those that don't want to read through the entire previous post, I basically feel that a Fed announcement that comes in at $100 Billion/month of QE or less will result in a short term sell-off in stocks, and an announcement that comes in significantly higher will result in a short term rally.  

I had also mentioned that I might have an options play or two going into the FOMC announcement, but I have since decided against doing so, and in fact have gone to cash in both my equities and forex accounts.  I'm not going to dwell on this topic too much, as I'm not a long term investor, but for those of you who are, and have a lot of money in long stock positions, you may want to consider buying some index puts as a hedge against a sell-off in stocks.  As a short-term trader, I don't have any open positions to hedge, so trying to a make a bet on which way stocks will go as a result of today's Fed announcement is akin to choosing between black and red at the roulette table, so I will wait and get back into positions later in the day or week.

As for the more long-term implications of QE2 - no matter what the amount, I think the graphic below is an appropriate depiction of what Bernanke's Keynesian policies have in store for the U.S.