2015 is going to be quite the year for central bankers (Isn’t every year?). The SNB reneged on its promise to keep the CHF pegged to the Euro and has caused what seems to be irreparable damage to the public’s trust in said institution. I’ve been long European Equities since the Swiss abandoned the peg virtually waving the white flag for the ECB to step in and restore public faith in central banking omnipotence with a QE programs two and a half years in the making.
Back in 2012, Draghi said he would do whatever it takes and that it would be enough. I believe the first part but not the second. You can’t expect to slay the deflation dragon by pushing on a string, especially with both hands bound behind your back with the Gordian knot that is European Governance. You’d think after a few centuries of notably pathetic attempts at central planning, kings presidents or whatever you call the man sitting on the throne would step back and realize that they are no different then their predecessors. Which is probably a good thing because who would want to live in a world where their ego-maniacal theories actually hold water?
I’m getting off topic. Back to Draghi, who I should be thanking for the extra cash I’ve made this week due to my leveraged long European equities position. He’s finally making good on his promise and he’s not the only Central Banking Overlord that will do so.
The Federal Reserve has promised to raise interest rates in the first half of this year. Although most people seem to think they’re full of goose poop, I am of the mind that they will do it sooner than expected. To help support my theory I present, the president of the St. Louis Fed, James Bullard. He was talking to the WSJ, but who needs them when all you had to do is listen to me two weeks ago iterating the same thing.
Mr. Bullard said U.S. long-term rates are being pulled down by global factors, and not new threats to the domestic economy. He wants to “get going” with rate increases.
I advise you to read the whole article for yourself. There are some other juicy quotes that I left out for brevity, but the synopsis is this: The Fed means business. It wants to raise rates. Whether that is to give it some extra “dry powder” for when things go south again or because they want to crash the economy, or maybe they really believe that now is really the best time I’ll leave that up to you.
What you should think about now is what does a Fed rate hike mean for me as an investor? For one the dollar will strengthen. Short term interest rates will rise while long term interest rates fall causing the yield curve will flatten like it’s 2006. Yes I still believe there is room for the RECORD LOW long term US interest rates to fall even further. Just look at Switzerland where interests rates last week out to 12 years were NEGATIVE. So please, buy some long bonds before I hit you for not recognizing the most obvious trade of 2015.