There are some that expect US debt prices to tank given an E-Z solution. No, this will not happen. Prices will easy the balance of Q1; the term structure will expand, balance of Q1, but there will nothing on the order of a jolt. This is because there is more to a low US rate structure than just the world wide flight to sanctuary. That would be the translation of Fed intent.
For example, the Fed just sent a beacon to the market crowd that the FF’s target will remain at rock bottom for a long while. The mkt crowd takes that as gospel, and, assumes long rates will too.
Since Bernanke envisions a slow recovery that makes it a fact in the mind of his disciples. The US won’t boom in 2012 naturally but will move a heck of a lot faster than the Fed understands it will. Thus, the congregation are about to be converted to crow bait.
We want to be careful that we don’t get rolled too. Carcasses of traders who were right, but at the wrong time, are piled high. We always encourage our clients to discard the fluff. Listen carefully to what we have to say but then only work strategy at the margin, snipping a bit here and there on bouts of disappointment for example, building a position in that manner; never wholesale and never in a rush.
Robert Craven
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