BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
A symphony is a complex extended musical composition, most often written for a large orchestra. If you haven’t attended one, I highly recommend it – you might be pleasantly surprised by how the experience can be both relaxing and invigorating. Gustav Mahler’s works are my favourite – a man who wrote some of the world’s longest and most dramatic symphonies.
Speaking of longer: A Quantitative Easing (QE) “symphony” has been ongoing for quite a number of years now, with the major musicians being the Bank of England (BoE), the European Central Bank (ECB), the Bank of Japan (BoJ) and the Grand Poobah of central banks – the Federal Reserve (Fed).
The Fed played mostly solo in its QE symphony coming out of the 2008-2009 financial crisis, with the BoE playing backup on the triangle. But just when we thought it was coming to an end, the ECB and BoJ forged ahead with an unrelenting adagio of their own. In fact, the BoJ even surpassed the Fed’s best efforts in total dollar-stimulation to the Japanese economy.
As we look ahead to 2018, I can’t help but notice a planned return to much lower levels of monetary stimulus via QE. As a result, stocks could struggle and volatility could return. That would be good for option selling strategies like covered calls. It may be time to take another look at this popular income enhancing strategy. Listen to the delightful denouement of the QE sonata. It has been a good run for equities, but get to your car early when the performance ends The exit from the parking might soon be getting congested.
Monthly Net Asset Purchases By Major Central Banks (US$bn)
Source: Thomson Reuters, Capital Economics, as at November 2, 2017.
The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.