The Fed Trade

Everything is going up.  Stocks are going up.  Bonds are going up.  Commodities are going up.  The Fed trade is in full motion.  Don't believe what the pundits tell you about the economy.  They can't forecast what will happen next month, much less the next year.  It is complete hubris for economists to predict a rate hike in the 2nd half of 2015 when Janet Yellen is saying she will keep rates low for a long time unless she sees CPI consistently above 2% and employment stronger.

I take Yellen for her word, she doesn't believe there is a bubble in the stock market, so she won't be taking any preemptive actions to prick a bubble.  And the government will continue to lie about inflation.  Wages aren't growing strong enough for the lie to be too obvious.  An if the lie isn't too obvious, they will continue to lie.

On any other sane world, the Fed would be in the middle of its rate hikes, but its not a sane world.  The Fed has an insatiable desire to keep interest rates at zero until there is a huge cry about inflation.  And we aren't anywhere close to that point.  In fact, the Fed is smarter than they are given credit for.  Fed fund rates at 2% or higher will kill the recovery and kill housing.  And by extension, kill a lot of the financial engineering games and thus kill the stock market.  So they are extremely reluctant to raise rates.  The pundits seem to overlook this, in their eagerness to see a more normal rate environment.  It just isn't happening.

Overnight, we got a huge move in Bunds, now 1.4% on the 10 yr there, which drove bonds much higher.  We haven't seen this kind of big bond rally overnight since Ukraine was the main headline.  This has come on very little news.  Which makes me believe that this bond rally has much farther to go.  Even while we are at all time highs in S&P.  Amazingly bullish market right now in bonds.  And stock indexes here are untradeable.