I see on the Internet a lot of talk amongst the financial types that QE3 may/may not taper off. I have owned some mutual funds as part of an IRA for the past year and took advantage of the huge increase in stock values. My question is, what should one invest in if QE3 does end? In my head I would think that the market would go down and therefore make stocks and mutual funds will lose their value. What about the following items? (listed in no particular order)

  1. Precious Metals

  2. Foreign stocks+mutual funds - are foreign markets experiencing the same sugar high as a consequence of our monetary policy?

  3. Corporate bonds - I don't know much about the bond market and when to buy/sell

  4. Municipal bonds - Same as previous

  5. CDs at the bank - I know interest rates are horrible.

  6. Any others...?

  • 1
    Pure speculation, but if QE3 ends, I'd suggest buying into stocks. I feel that we are still in a Bull Market, but if QE3 ends there will be a tight pull back before stocks rebound when people realize it isn't the end of the world. Dec 17 '13 at 20:17
  • 4
    Bonds will get hammered if/when interest rates rise. Dec 17 '13 at 20:56
  • Short EM stocks and some currencies. Dec 17 '13 at 21:07
  • Pardon my ignorance, but what is an "EM" stock?
    – mj_
    Dec 17 '13 at 21:25
  • just take a binary bet, it has equal expected value so it has neutral standing between investing (positive "expected" value) and gambling (negative expected value).
    – CQM
    Dec 17 '13 at 23:18

Any answer for what to do in a taper will assume ceteris paribus because how markets initially react when they suspect a taper may immediately change depending on what data are released after the taper.

For instance, I've seen Soros and a few other hedge fund managers hold shorts when expecting a taper because the theory is that the market may fall. However, suppose the market falls 5%, but then positive employment numbers are released. What then? The same holds true for betting against Emerging Markets (EM), something I've seen Jesse Colombo and others suggest; the claim that Emerging Markets are in a bubble thanks to the U.S. Federal Reserve (the more money they release, the more the money goes overseas ...). Again, this is possibly true, but if good data are released after the taper for these emerging markets, they could see growth and those with the shorts could get killed.

TL;DR - when we ask about what happens after the taper, we have to remember we're assuming some things about everything else.

I do think that the "safest play" post taper is what Bill Gross mentioned about bonds (basically a bubble), as we should see interest rates rise and the Chinese seem to be reluctant to buy as much of U.S. bonds as they have in the past (though some, like Mish, assert the U.S. would welcome this). The other play I like is the VIX (if you think the market will fall) or against (if you think the market will rise). SVXY has been one of the best plays since 2011 (compare it to the SPY for the same time period).


As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it.

A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid.

Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy.

As for your questions:

Precious metal... Buying or selling look for the trends and time frame for your desired holdings.

Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you.

Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere.

Find a strategy and perfect it, make a plan and stick to it.

As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.

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