Don’t Fight the Fed?

its no secret the Fed has been debasing the currency and one of the prime beneficiaries has been the price of gold.  While they would not admit it publicly there is little doubt it is an implicit goal of monetary policy.  What’s perhaps not as widely known is that the large speculators (aka HFs) have been net long Gold futures every single week going back 10 years.  every single week.  that’s not only a remarkable streak but it represents a very sad vote of no confidence in our central bank.

Chart: Bloomberg

We don’t consider ourselves conspiracy theorists but with the FOMC meeting this week that includes a post announcement press conference, we’d like for one journalist to ask Mr. Bernanke this question:  Is the time table for ZIRP through 2014 set to aid the US Treasury and enable them to get over the massive debt maturity wall in order to refinance at negative interest rates?

If that’s what they are doing we have a serious problem on our hands.  Not only are they monetizing a 100% Debt/GDP but they will be plugging the entire system full of negative coupons making the eventual exit from this monetary debacle even more of a train wreck.

When this thing ends, the Fed is not going to be able to just raise interest rates in 25bps increments and slowly allow the curve to rise.  The market will be in a violent mood full of negative coupon long duration assets that no one will want to own at anywhere close to par and the likely won’t wait on the Fed to turn seller before they hit the bid.

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About exantefactor

capital market veteran of over 15 years covering multiple asset classes. Focused on analyzying markets ex ante (before the event).
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