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OPINION

Bernanke's Quantitative Neutrality

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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There’s a lot of turmoil in commodity and stock markets. Last week they both got slammed. On Monday and Tuesday they rallied back. And today they got slammed again.

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The heart of this story is commodities, especially gold, silver, and oil. And the dollar.

And the heart of that story is a significant shift coming in monetary policy. Quantitative easing is going to end next month when quantitative neutrality begins. It’s a significant change by the Fed. And on a de facto basis, it represents a relative tightening.

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Traders and investors are fighting like cats and dogs over the meaning of the Fed’s policy. They shouldn’t be. The handwriting is on the wall. And Bernanke’s less-accommodative stance -- what I call quantitative neutrality -- is bullish for the dollar, bearish for commodities, and is leading to a stock market sector rotation of the major groups, away from energy and raw materials and toward more defensive plays like health care, utilities, and consumer staples.

Now, strong profits provide a good backdrop for the change in Fed policy and the rotation shift in the stock market. Profits will cushion whatever stock corrections are out there.

And, let’s face it, with a zero interest-rate target and a negative real fed funds rate, the Fed will still be highly accommodative.

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But my point is, going from quantitative easing to quantitative neutrality is a less-accommodative Fed. I think it puts a floor under the dollar and a ceiling over most commodities. And this change from the Fed is the main source of the volatility that we are witnessing.

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See Ransom's Top Picks for Thursday:

Kudlow: Bernanke's Quantitative Neutrality
Ransom: Crass and Cynical on Illegal Immigration
Shedlock: Oil Crashes
Ennico: A 'Rich Guy' Speaks Out Against Higher Taxes (Part 1 of 2)
Goodman: Unforgettable 
Ransom: The Democrat Debt Mess 


You can email John Ransom at thfinance@mail.com 

You can follow him on Twitter @bamransom and on Facebook: bamransom.


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