Trillions Coming out Ears

The Fed has gone to overkill with the bond buying.  They did the unlimited QE3 in September of 2012 and they should have stopped it, not tapered it after the debt ceiling and government shutdown was over in the fall of last year.  Now you have too much liquidity just going wherever the hedge funds deem worthy.  It is a bubblicious market.

Corporations can raise money issuing bonds whenever they want to, because the demand is insatiable.  And why so?  Because there is so much money out there, looking for a home.  Money that came from the $85B/month of Fed buying of MBS and Treasuries.

Look at what has happened to lean hogs, or coffee.  Those kind of overshoots don't happen unless you have billions coming out of the ears of asset managers.  They have more money than they know what to do with.

That is why I think it is much better to make a bearish bet by buying bonds rather than by shorting stocks.  Sure, in a panic, shorting stocks will pay off bigger than a long bond position.  But I don't think there will be a panic, there is just too much liquidity out there for that to happen.  Remember, panics usually happen either due to 1) an unforseen catastrophe (9/11, Fukushima) or 2) a financial meltdown/credit deflation.  There is very little chance of the 2nd option, and who bets on there being an unknown catastrophe?  That is sheer chance.

In a flat environment or a slowly weakening market, buying bonds are a much better bet to make money than shorting stocks.  At least with bonds, you are getting a positive carry while you wait, while shorting stocks, there is a slight negative carry with the dividends paid out and interest rates at zero.

Dennis Gartman got "pleasantly bullish" again on Monday afternoon.  Despite that, I still see this rally having more room to run into the nonfarm payrolls report next Friday, May 2.  There will be initial resistance here as we close in on the closing highs from a few weeks ago.  But other than that, there is nothing stopping it from getting above 1900.

Unless something dramatic happens, I will not be making any more blog posts this week.  I will probably make a few tweets if I see something interesting.  Otherwise, I'll be back next week.