Fed War on the Dollar

Ever since the dollar bottomed in April 2011 the Fed has been relentless in pursuing a policy that tries to destroy the dollar.  In the 17 months since April 2011 the Fed has pushed the long bond up 32 percent, gold up 16 percent, and the S&P 500 up 9 percent.  During this same time period the dollar has held on to a 2 percent rise.  Why would the Fed, which says it is pro dollar, follow a course of action that has the effect of destroying the dollar.  We all know the answer, Bernanke’s thesis work tells him that dropping money out of helicopters is the answer for everything.

The problem is however, that long-term interest rate markets are now edging into a command position to take over leadership with higher interest rates, regardless of what Ben does at this point.  If you are in the markets, watch the dollar/bond ETF ratio, ie the UUP/TLT ratio, it is set to turn up for the dollar and down for the t-bonds.  This could be the trade of a lifetime, at least mine.

Update after Fed Announcement:

High so far since announcement on the S&P is 1448, close to the ideal sell point of 1454.  We are moving into aggressive short mode, it doesn’t get much better than this, as they say on the farm “it is like shooting rats in a barrel”.

Update at 2:00 PM CDT

High on the S&P is bow 1464 and we have finished up our selling.  Ben is now speaking so we will just have to see whether his “Hail Mary” leads to a touchdown or a fumble as the game continues.

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