So. No more exit strategy.

Ben doesn't even dare to talk about exit strategy (i.e. selling bonds) now, after all the rhetoric in recent years. Over the years, people were arguing with me that he has an exit strategy. But if one really does his homework and look at the actual numbers, one will realise that it's not tough to call his bluff. 

A mere mention of tapering (i.e. stop buying so much bonds) has already made bond holders so nervous. I started shorting bonds in March, and so far it has been profitable. Didn't expect bonds to fall so early. I was thinking it will fall towards the end of the year, and wanted to stick a foot in. Fortunately, I entered the trade early.

It will be interesting to see what he says in the next FOMC at the end of July. I will wager that the rate of money printing (sometimes euphemistically called Quantitative Easing) will be increased in the future. They will only reduce the rate of money printing if they dare to allow the government to default, or if they dare to allow the too-big-to-fails go bankrupt. 

Over the years, I've compiled soooo many news and opinion articles by economic commentators, who have been cheering for economic recovery and cheering on the Fed. In time to come, I will post the links to those articles (hopefully the links are still working). I do this not for the purpose of naming and shaming the authors - not at all - but to show how much irrational exuberance there can be in the market. It is hard to be aware that one is in a bubble. Is this complacency? Over-confidence? In my opinion, not so. It's more about wrong economic theories. I hope that as we see more and more financial turmoil in the world, the world will increasingly be more aware of some basic Austrian Economics, and make some effort to understand it. Only then will things start to make so much more sense.

Hide behind the inflation rate

Bloomberg: "Federal Reserve Bank of St. Louis President James Bullard said the central bank may need to increase monthly asset purchases above the current $85 billion pace if inflation slows further below its 2 percent goal."

May need to increase? More like WILL 'need' to increase! 

But anyway, this is the excuse that they will use to further increase the size of their QE: low inflation rate. But eventually, even the government's CP-lie numbers will no longer be able to hide the rate of inflation. By then, what other excuse will the Fed have?

The world consumes the same corn, wheat, copper, beef, and what not. So it is astounding that nations worldwide report 5-7% inflation rates, but the US only has a 1%+ inflation rate. Education, tolls, transport, healthcare, energy, food, bonds, stock prices have gone up rapidly in the past few years, but the authorities claim to have low inflation?

Global recession

Every credit-fuelled boom ends in a bust. Since 2007, there has been massive money printing on a global scale, something that has never happened before in history. As the Austrian business cycle theory predicts, this causes artificial booms. The day of reckoning is near when the excesses have to be purged. 

Will it start in Japan? China? Europe? US? I have no idea. But the asians are in a much better position to deal with a crisis. The worlds' creditor nations and manufacturing hubs are in Asia. The debtors are in the West.

This time round, it will be weird to see people rush into the perceived safety of US bonds again. This was what happened about 6 years ago. When the US bonds were downgraded, everyone rush into the safety of..... US bonds. How long will the bubble last? It is certainly coming to an end. It'll be weird if this party lasts beyond 2013 or 2014.

FOMC announcement tomorrow

The Fed announcement tmrw, like previous announcements in the past few years, may excite markets in the short term, but in the long term and in the big scheme of things, it's inconsequential. The bond bubble will still burst eventually, whether it's forced by the Fed themselves (highly unlikely) or if it's forced by the market. 

But just for kicks: They are more likely to continue/increase their QE size than to taper, cos they need to cover all those lost bond demands. Even if they announce tapering, the money printing still goes on behind the scenes, as has happened all the time in the past decade. 

If i'm a short-term betting guy (which I'm not), I'll bet that he maintain the QE or even increase it. He may say something like: "The recovery is ongoing but the Fed wants to be extra sure. So we increase the QE."

USDJPY and Nikkei

Both have been rising 8 months prior to May. I started shorting USDJPY in early May, and so far it has been very profitable. Unfortunately I don't have enough capital to short the Nikkei. I'm not doing day-to-day trading, just trying to take advantage of the fact that something has been going in one direction for 8 months, and so there has to be some correction at some point.

This is just purely a speculative short term play.

Global pension funds

The global pension funds of major nations totalled some $30 trillion. Most of them are in bonds and stocks. Here're some examples. During the next currency and bond crisis, I wonder where they will go to.

-Towerswatson