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THE UNRAVELING QE TRADE

The QE trade continues to unravel as investors recognize that QE doesn’t really have any inflationary impact at all.  As I mentioned repeatedly in recent weeks the run-up in most commodity prices was entirely irrational and based on the false belief that QE was “money printing” and therefore inflationary. This truly was the irrational and inefficient market in real-time.

Markets have reversed course in recent weeks and in some cases the moves have been spectacular.  Most markets have reversed to their pre-QE2 levels including the dollar, bonds, and many commodities.  China is off 14%, cotton futures have crashed 41%, the CRB index is off 9% and the dollar has rallied over 5% from its lows.  The rampant misinformation and inaccurate reporting with regards to QE was truly astounding, but made for some easy money for those who were able to understand the real-time inefficiency at work.  The dollar unwind continues as leveraged shorts get squeezed out of positions they never should have entered in the first place (Via Zero Hedge):

“there are still just over a whopping 10k contract shorts that need to be covered before a reversion to the 2010 LT trendline. This is why we are currently seeing a massive unwind in the dollar short carry trade, and why once again rumors that macro funds are slowly and quietly receiving billions in margin calls behind the scenes.”

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