The elections are over and the Republicans took over the House but not the Senate as expected. Today is D-Day for Quantitative Easing or QE2… Decision Day. Now it is time to deal with the FOMC’s version of quantitative easing and its short-term and long-term implications. Ben Bernanke and friends are expected to show at least some data on what measures will be taken around 2:15 PM EST this Wednesday. The consensus seems to be that longer-dated Treasuries will be bought through time in order to attempt lowering longer-term interest rates while Ben Bernanke and friends keep the short-term rates at near-zero for an extended period. Much of the news is likely already priced in if you see the September and October gains. We wanted to give the most liquid and the most relevant ETFs for each major sector that stands to win or lose as a result of QE2.
Some of the key ETFs we see having longer-term pricing issues after QE2 are some of the main go-to ETFs for traders, but some of our ETFs are inverse and leveraged as well due to the volatility that is sought by traders. Some of the ETF and ETN products were are tracking are Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ); SPDR Gold Trust (NYSE: GLD) and the PowerShares DB Gold Double Long ETN (NYSE: DGP); CurrencyShares Swiss Franc Trust (NYSE: FXF), WisdomTree Dreyfus Chinese Yuan (NYSE: CYB), and PowerShares DB US Dollar Index Bullish (NYSE: UUP); then there is the iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) and the ProShares UltraShort 20+ Year Treasury (NYSE: TBT).
Financial Stock ETF Winners, Hopefully… and Maybe Housing
Banks and financials have been under pressure due to mortgage put-back fears on mortgage fraud and foreclosure woes. If any sector could be helped by QE2 and lower rates, it would be banks and financial stocks. Despite that they are earning very low interest, they also have to pay almost no interest as well. The triple-leverage funds from Direxion are perhaps the most liquid and most volatile of all in the sector. There is the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) that move at triple the intraday moves of the Russell 1000 Financial Services Index. The bullish shares trade close to 35 million shares a day and the bearish shares trade close to 45 million shares a day. There is deemed a greater risk of tracking error on these due to the volatility, futures contracts, and more, but these are very volatile and very actively traded ETF products.
SPDR S&P Homebuilders (NYSE: XHB) stands to win if housing wins from QE2. If the foreclosures can be cleared out and if the borrowing rates will stay down at historic lows, then perhaps more consumers will be able to afford houses in 2011 and 2012. Whether they buy used homes and foreclosed homes is one thing, but many still want that new home that is all theirs and comes with no baggage. This ETF is full of homebuilding stocks and is meant to track the S&P Homebuilders Select Industry Index, which represents the homebuilding sector inside the larger S&P TMI.
QE2… A Bet Against Currencies or the Dollar
It seems that many developed nations are trying to devalue their currency simultaneously even if the dollar is not in favor. The only safe bet for a country that might try to hold the line is Switzerland for their Swiss Franc, and the Swiss Franc can be traded via the CurrencyShares Swiss Franc Trust (NYSE: FXF).
Another exception is potentially the Chinese Yuan depending upon how the newly elected Congress decides what tone they will use against China. Almost all investors agree that if China were to de-peg then the Chinese Yuan would rise appreciably against the US Dollar. China’s reserves are higher and its economic fundamentals are among the best globally. The two direct beneficiary ETF/ETN products here that will win if China is forced to de-peg the Yuan from the Dollar are WisdomTree Dreyfus Chinese Yuan (NYSE: CYB).
If you think that US Dollar’s decline will not go on and on endlessly, then there is the PowerShares DB US Dollar Index Bullish (NYSE: UUP). This ETN tracks the Deutsche Bank Long US Dollar Futures index, which is comprised of long futures contracts rather than being comprised of raw currencies. This is against a basket of currencies, and it is less volatile than many other direct single currency.