The Scary One Man World of Bernanke

As Europe and then Japan jumped on the Bernanke train over the past two years we have seen a world of extreme risk become our lot.  The one thing everyone knows is that interest rates will rise at some point.  It is the only thing that is known for sure.  The outlook for world GNP along with  stock and gold prices is where the divergences emerge.

So how does this play out?  Well first, everyone acts on the sure thing, they sell T-Bonds.  Then they look  around, and maybe buy gold because they all know for sure that inflation is next.  And stocks prices, well they are the elephant in the room, they have all the funny money that has escaped from the FED, so everyone knows you have to own them.

My conclusion, it has been and will continue to be, this is a fight against deflation.  This fight started in 2008 and the only sure result is finding a base where assets are valued for the conditions that prevail.  That is much, much lower, and will take time.  

It has been a long time since I mentioned one of the three factors that we consider for our blog, politics, the other two being economics and markets.  This morning it was revealing to me to watch Morning Joe on MSNBC and see Joe and Mika talk with James Carville on the economy, the stock market and how that impacts politics these days.  Joe and Jim basically thought this was a really heady time for Democrats.  Mika on the other hand was less convinced and to me the most realistic of the three.  My read is that the Libertarian wing of the Republican Party, the Ron and Rand Paul wing, will be the principal beneficiaries of the chaos that will ensue from the coming Bernanke meltdown.

Bottomline, T-bonds will probably be more a trading market than a crash for the next six months, overnight we are seeing the March 2013 bond lows being played with, the area where we covered our shorts bonds from last July.   My guess is that the range for the next 5 months will be more like 140 to 148, how can interest rates go up with deflation waiting at the door?

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