John Kemp: ONE LAST SUPER-BUBBLE (Reuters)â Like the sorcererâs apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control. Now the Fedâs decision to cut interest rates to between zero and 0.25%, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt. [...] The problem is that if the unconventional monetary policy works, and the economy picks up, the Fed will come under pressure to ânormalizeâ rates and reduce excess liquidity to prevent a rise in inflation. The resulting rate rises will inflict massive losses on anyone who bought bonds at today 2.25% rate. Bizarrely, Bernanke and Co are in fact inviting investors to bet the policy will fail, the economy will remain mired in slump for a long period, deflation will occur and interest rates will remain on the floor, as Japanâs have done since the 1990s. [...] http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081226/REG/812229993/1036
http://bloomberg.com/apps/news?pid=20601109&sid=aNbSSaVZXZ.M&refer=home Don't let the article title deter you. It is all about interest rate swaps. Soooo, destroy the last decade with interest rates near zero. Then, destroy everything else with a massive run-up. Numbers are staggering, hundreds of trillions with a T. Once unthinkable, now unstoppable.
I am starting to think that piggy back riding this bubble might not be a bad idea. I missed out on the last few bubbles because I was trying to outsmart the market and the short the top. Now I am thinking, why not join the crowd? I could ride the ZB up and use a 10% trailing stop. If ZB goes up 10% from here, I'll be in break-even point.