Bernanke's "Oh, Shit!" Moment
According to Bloomberg, mortgage bonds backed by Fannie Mae and Freddie Mac are now higher than when the Fed announced they would buy $1,100,000,000,000 (trillion) worth of mortgage bonds. These purchases have almost completely been bought from Fannie and Freddie.
The 30-year Treasury now yields 4.56%. 30-year mortgage rates are now back up to 5.00%.
I believe that this is the beginning of a trend that's going to become stronger. What are the consequences? First of all, there's oil back up to $63. The problem with a trend like this is that the supply overhang, the OPEC cheating, and the lack of demand growth, could cause a spectacular plunge in prices if the support of dollar devaluation is removed.
One thing's for sure, the consumer is going to be in a bad way if mortgage rates go back up to 6.5% and oil goes to $100 by the end of the year.
Here's my question: Is the monetization of debt that won't be paid anyway bullish because it lightens the debt burden (making growth possible?), or is it bearish because everyone now realizes it won't be paid back?
Do I keep my oil short with its risk of a continuing slow rise in oil prices, or keep it for the opportunity of a sudden drastic plunge? I'll keep it, but get rid of it if it costs me too much.
My Euro short? It would've been a great play if the dollar hadn't plunged to a four-month low in the last couple of months. Should I hold on to it? It's not hurting me, so, why not?
In the meantime, the chart is telling me to sell ABX. It's almost 20% over the 50-day moving average, the stochastic is showing overbought levels, and the RSI is also very high. I'm closing all of it.
Sold 30% position in ABX @ $36.43. This closes two positions, for an average gain of +9%.
posted by The Obfuscation Oracle @ 11:05 AM
1 comments
1 Comments:
A euro short is a very bad idea. An insolvent financial system ISN'T necessarily bad for the local currenty.
PROOF: If an insolvent financial system really did equal a weaker currency, then the dollar should have tanked back in the 1930s. It didn't.
What determines whether a currency goes up or down is whether the monetary authority prints money (quantitative easing) or not. The Fed is printing like a madman. The ECB is not.
The US has already bought 430 billion mortgage backed-securities and $123 billion treasuries. Meanwhile, the ECB hasn’t even started yet and is having trouble agreeing on the planned purchase of a mere 60 billion euros in covered bonds
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It was called “the great depression.” The US didn’t print money, and there were widespread bank failures (2 out of 5 banks went under). From 1930 to 1933, the dollar gained 10% per year because of deflation.
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There will be 1930s deflation in the euro zone. This means widespread bank failures, and a much stronger euro.
http://www.marketskeptics.com/2009/05/ecb-infighting-preventing-quantitative.html
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