QE3? Addendum

In the wee hours of this morning (see post immediately below) we wrote : "there is more division than it may seem within the Federal Reserve".

A few people asked us today what made us say so. We'll not answer that, rather simply point out the important thing which is that it's true. This afternoon we have this news upsetting the markets and Fed front-runners :

Only few on Fed supported QE3 in January (click to read the article).

We suggest this worth considering, which history arguably corroborates; the Fed does not actually set rates, it chases or simply matches rates. Of course Fed policy and actions have some bearing on rates, but the bottom line is that when bond and treasury investors want rates to go up then rates will go up and the Fed can only follow along.

Put a different way, our TBT position will be already rising when the Fed finally starts raising rates. Another thing to keep in mind is that rate movements almost always continue for at least months and often years in a given direction. That said, we could be months, years, even decades (like Japan) before rates rise materially, but once they do we should be prepared and able to speculate very profitably.

It could happen much sooner than later. Completely contrary to Fed pronouncements recently, before 2014 wouldn't surprise us at all. We're not the only ones who think so (click to read).



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