Thursday, November 04, 2010

bond frenzy redux

Here is my latest post on "The Art of Contrarian Trading".


Sachin said...

Hi Carl,
ES hit a high of 1215. Do you still see more upside or do you see a gradual breakdown of 30-40 points?

Laurence said...

How is it Carl you don't see the consequences of the Fed's QE? It is the creation of cash from nothing. Simple economics 101. This means cash looks for a home in stocks, bonds and commodities and hurts the dollar. When Ben stops the printing press because he is forced to as rising commodities will kill any chance of economic recovery the great unwinding will begin. ie. stocks, bonds commodities will fall.

Digger said...

QE does nothing in terms of quantity of money available to the economy but it does increase bank reserves. This might matter if banks were not making loans because of a lack of reserves but this is not the case. The Fed can increase reserves all it wants but if no one borrows money into existence it is meaningless. The Fed can not force households and businesses to borrow.

If anything QE is deflationary because it deprives the non-government sector of interest income.

This is not to say the belief that QE actually does something other than shift duration can not move markets.

Some of the recent posts from Warren Mosler (link below) and Cullen Roche like might be educational. Billy Blog is also excellent.
This tool may help visualize the flows:

Counter Insurgency, Deficit Terrorist Unit

"The obscure we see eventually, the completely apparent takes longer" --- Edward R. Murrow

Win said...

There are two types of people: optimists and pessimists. I am an optimist and am saving money for a down payment on a third property. I am hoping that I can put down a down payment and get a 30-year fixed rate on a loan before rates go up. I am very sure that rent will return much more than the mortgage payment. I know that there are many others thinking like me. They are not reading trading blogs, though, which are filled with pessimists. They are busy making money.