The End of QE2

Ritholtz sums up his expectations for the markets' reactions:

While many people are looking for an equity collapse post QE, I wabt to suggest we widen our focus, and consider the action in Bonds and Commodities post-QE:

• Bonds: The Fed has already bought $400B of their $600B in Bonds. When that bid goes away — or if the Fed begins to reduce their balance sheet and unload these holdings, what will that do to bond prices? We should expect to see a gradual rise in interest rates, with the 30 year climbing over 5% and the 10 year breaking out over 4.25%.
• Gold: Having little industrial value — its worth is what someone else is willing to pay for it — Gold may be the most vulnerable of commodities to the end of QE.Consider that the current secular bull market for gold began under Greenspan’s rate cutting regime back in 2001. His inflationary 1% Fed rates started the entire super cycle of commodities.
• Agricultural Commodities: Its not just the weak dollar. AG has currently run up on poor crops due to drought/floods, burgeoning Asian demand, and some speculation as well.
• Oil: The Middle East is the wild card, and it makes it difficult to assess what price action could occur if the Dollar strengthens.  One thing is certain: The easy speculative money has already been made. Things become much more challenging for Oil traders.

While I do not discount the probability of a significant market correction — I figure 25% peak to trough when this bull has run its course — once the Fed’s liquidity begins to drain, other asset classes will be juts as affected as equities — if not more.