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"There IS An Alternative" - Since The End Of QE3, Financial Market Returns Are Negative... Except The US Dollar

"There is no alternative. What are you going to do with all that cash earning nothing - you have to invest it!"

That, in about 20 words, is a summary of what 90% of CNBC "pundits" say day after day (it also explains why CNBC asked Nielsen to stop tracking its viewership ratings).

Of course, what that statement also says is "don't fight the Fed", which will do a better job of allocating your cash for you in risk assets. This quasi-religious philosophy - because blind reliance on faith is not a trade, and hope is not a strategy - worked for several years, as long as first the Fed, then all other central banks were injecting trillion of funds into markets. However, as explained earlier, recently the Newer Normal was unleashed - a time when the Fed is no longer in control due to capital outflows and money destruction from Emerging Markets eclipsing outside money creation by DM central banks.

It no longer does. In fact, as Bank of America notes, not only is fighting the Fed (remember: the Fed's prime directive, far more important than even its "China" and "Dow Jones" mandates, is to debase the currency) now the best strategy, but - much to the chagrin of talking heads everywhere who will have to change their bulletin scripts - there is an alternative, because "2015 is on course to be 1st year since 1990 that cash outperforms stocks & bonds."

From Bank of America's Michael Hartnett

The Bear Necessities 


2015 on course to be 1st year since 1990 that cash outperforms stocks & bonds. Year-to-date annualized returns: dollar up 6%, cash flat, bonds down 2%, equities down 6%, commodities down 17%.


September risk-off continues: global stocks are back at their August lows, AAA investment grade bonds are the best performing credit; EM FX has collapsed to their lowest levels since September 2009, while Brazilian real collapses to all-time lows, as southern hemisphere currencies get battered (BRL, ZAR, IDR, AUD, NZD).


Annualized returns between QE1 (3/9/2009) & end of QE3 (10/29/2014)…stocks 20%, HY 18%, REITs 31% (Table 1).




Since the end of QE3, financial market returns have been negative with the important exception of the US dollar.


$100 invested in a classic stocks/bonds/cash portfolio (60/30/10) on March 9th 2009 was worth $218 by end of QE3; today that same portfolio is worth $209.


The big upside for both corporate bonds & corporate stocks has subsided as the liquidity story has peaked. Of greater note, the recent big reversal in the performance of assets directly linked to the bull market on Wall Street. Private equity managers and large asset managers saw their stocks appreciate 36% & 32% respectively between QE1 and the end of QE3. Since the end of QE3, the annualized returns are -10% & -18% respectively.


* * *

Hardly a ringing endorsement for a central bank which is starting to lose control. No wonder then that Yellen was not quite feeling "it" during her speech yesterday...