In late May, Bernanke and his cohorts at the FOMC surprised the global markets with a trial balloon hinting at a willingness to start reigning in asset purchases later this year if economic conditions warrant. The markets, after 5 years of steady infusions are hooked and the addict did not like what it heard, but the difference between a down and out addict and a functioning one is often a willing enabler.
Thursday night in Cambridge, Bernanke popped that trial balloon and showed that Central Bankers everywhere are still ready and very willing enablers.
"And I guess the final thing I would say in terms of risks of course is that we have seen some tightening of financial conditions, and that if, as I've said and as I said in my press conference and other places that if financial conditions were to tighten to the extent that they jeopardize the achievement of our inflation and employment objectives then we would have to push back against that."
Furthermore (from Forbes)
- BERNANKE: 'TOO EARLY' TO SAY U.S. 'WEATHERED FISCAL' RESTRAINT
- BERNANKE SAYS INFLATION, JOBS SIGNAL MORE FED STIMULUS NEEDED
- BERNANKE SAYS FALLING INFLATION CAN BE BAD FOR AN ECONOMY
- BERNANKE SAYS `OVERALL THRUST' OF POLICY HIGHLY ACCOMMODATIVE
The Currency markets went absolutely insane. The Euro moved 500 pips from Tuesday's lows to last night's highs. Bonds SPIKED higher (rates lower) and the Metals ripped with Gold up 3% and Silver up 5%. Stocks also loved what they heard with the DJIA futures probing all time highs and the RUT continuing to make new highs.
I don't know what happens next. Nobody does - but I do know that a LOT of money has fled Fixed Income of late and specs have gotten short the Bonds/Metals and speculative open interest in Commodities in general is lower than it's been in years.
Bond fund flows:
Commodity (CCI) Commitment of Traders (beyond 2008 lows):
Gold COT data (lower than 2001):
The easing will likely continue far longer than you expect. This "threat" existed in 2010 as well as 2011. Similar story (anemic growth) new year. The risk of rippling collateral damage of rapidly rising rates is TOO great. For a Treasury that has a massive debt to service. For consumers/housing/and a very fragile global "recovery".
I would consider long deltas in Natural Gas following today's inventory data. I think the market is well supported around 3.50.
Gasoline looks "rich" relative to Heating Oil at present.
Watch Coffee. Expiration tomorrow and if it gets through 125, perhaps the short covering begins.
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