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August 9, 2012

Monetary Policy Needs Tightening Instead of Easing

By Russ Winter 

The Commercial of Traders (CoT) is suggesting that the markets are far too optimistic about further short end of the curve rate cuts. Indeed given the way grains, oil and gasoline prices have rapidly lit up lately, we may be looking at actual increases in short term rates.   Further as I (and others) have suggested,  ZIRP is very costly to money market funds, insurers, and even banks.   Although I don’t see central rate maneuvering in a debt bubble as material let alone effective, some have even argued that to get people to borrow, the Fed needs to signal that rates will move back up.  In terms of Treasury supply the Fed would have to be extremely active to restrain rates at almost no return.  Additionally the bizarre trade into what I have called the Bogus AAA Sovereign Stupidity Arbitrage may have come to a head.

The commercials are now very heavy short eurodollars and 2 year Treasuries. They are short the whole Treasury curve, but especially the short end.  I am short Sept Eurodollar and 2 year Treasury futures.
The latest on five-year inflation expectations: Ease ahead, hardly they need to tighten.

source: Zero Hedge


About The Author - Russ Winter is a veteran investor, financial writer, world traveler, and he blogs at Winter Watch.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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