The End of Quantitative Easing and What It Means for Commodities

NEW YORK (TheStreet) -- It's rather bizarre that we've heard so much from pundits and Republican policymakers about the horrors of quantitative easing, how we've needed to end the problem for too long, and now -- when we're less than three months from closing the program, nobody in Washington or on Wall Street is talking about it.

It's odd but true -- in the wake of such noise making, the debate has abruptly turned to interest rates

Certainly, interest rates are important. Still, how are we looking right past the end of quantitative easing without acknowledging that we're finally going to be done with printing money?

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Since 2008, we've basically had a printing press at the Federal Reserve. The most recent QE has pumped about $35 billion into the economy. There was supposed to be massive inflation due to this printing. The truth is, we had little to no inflation. In fact, it is quite likely that we will see a strengthening dollar. The dollar has been in a nice uptrend.

This leads us right into the end of a Fed buyback program that has basically printed $4 trillion without increasing inflation. Sure there are pockets of inflated prices such as crude, wheat, and even the price of tea in China, but it isn't true inflation. That's called anecdotal evidence.

What nobody is focusing on is the fact that it is very likely the U.S. dollar will start to gain ground on all other currencies. This will, in turn, hit all commodities. Every single commodity that is traded in U.S. dollars should slide in value. WTI crude could test $70-$80 per barrel based on our current supply numbers and the fact that geo-political unrest hasn't slowed global production in the slightest. Even Libyan oil is starting to come back to markets.

There is a chance that markets, overall, will be hit when this happens. Why? This is a bit unprecedented. We have never seen stimulus like this be taken off the table. You've heard the term "baked in?" There's very little evidence that the end of QE has been "baked in." Despite the headlines, we've been trading mostly sideways this year, but nobody knows how markets will react when the Kool-Aid is actually removed.

I'll be the first person to tell you that our economy is improving and has been since 2009. I'll also be the first one to say that markets are not in a bubble, nor are we overbought, in my opinion. I like the direction our economy is going and believe that we'll see unemployment get in the mid 5% range within a year. Corporate profits will continue to rise as they are much leaner and meaner than ever before. They will not hire until they absolutely have to, and that is healthy.

Ok, that's enough of the good. Now for the bad: The degree of uncertainty that will face us at the end of tapering is huge. Will we plunge right back into deflation? Will U.S. investors take their money and play a wait and see approach? The truth is, nobody knows. There is no possible way to price in something that has never happened.

Here's what I think will happen: We should absolutely see a VIX spike. People would be crazy to leave their money on the table without protecting it as quantitative easing ceases to exist. This 10% correction that everyone screams should come will come. Who is going to want to get in the way of a fading market when you know QE is finishing?

I've been one of the biggest bulls for quite a while. Do I think we'll head to a bear market? No! I think in the end it will be an opportunity, but it will be nasty. The dollar will strengthen and the overall economy will be questioned. All high-flyers will be punched in the mouth. Pandora P, (P) Netflix (NFLX), Facebook (F), Twitter (TWTR), Amazon (AMZN), you name it. Their multiples will be questioned.

The real question is when it will happen. I sincerely doubt that savvy investors will wait until the last dollar of QE is infused to get out. It is much more likely that people will start trimming their exposure in August and September.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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