Wednesday, December 12, 2012

Dollar devaluation

The chairman of the U.S. Federal Reserve bank is intent on devaluing the U.S. dollar. By tieing the interest rates to the unemployment rate he is committing to long term low rates and a lower currency value. That is how we will become an exporter again. He is playing China's game.....

From Bloomberg


And now for the end of the day pictures.

Bonds reacted badly. Interest rates rose in expectation of inflation. Stocks and materials stocks in particular rose sharply and then sold off at the end of the day. Pay attention to the knee jerk reaction of the traders. The traders unwind their day trades and muddy the picture but usually the initial reaction is the correct one. We still have the "fiscal cliff" thing going on, so stocks may tread water till next year or at least till a decision on the federal budget.

But as I have said before, I watch the bond market for clues to where the money is going. If the bonds start losing value it could cause a change of trend of historic proportions. I hesitate to put it that way because it may take some time to get going but the 30 year bond market rally WILL end sometime. A bond is only good if the bond issuer stays solvent. But if you want to sell a bond before it matures, like you have in a bond fund for retirement, you have to hope there is a buyer for your bonds. As interest rates rise, your low interest bond will not hold it's value. Beware of bond funds. Bonds can be like housing. The don't go up forever. We learned that lesson the hard way. This could be the next repercussion of the housing and financial market debacle. The backlash of the remedy! As the government bonds lose their safety!  Just sayin'.

Charts of the long bond:

Trendlines in different timeframes again. Why am I seeing more of those lately?

Watch your risk.

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