Trying To Keep Sane

Fed Lunacy is creating euphoria in inflation protection strategies. It looks like portfolio managers are grabbing everything that is not nailed down. Commodities and stocks are in heaven, while long-term bonds are sliding with yields rising. Wait!!! Say what? Let's exhale and remember what was intended in Fed's heroic actions of QEInfinity. They are supposedly buying the long-term securities in order to keep their yields down, thus providing low-rate financing for housing, while allowing purchasers to qualify for higher balances on mortgages, and therefore theoretically increasing the prices of homes.

So take a look at some charts below. 5-yr UST-TIPS breakeven inflation rate is breaking out. There is a rout going on in the treasury market - bond investors are screaming "inflation" at the top of their lungs.

But after QE1, 2, and Twist, in which Fed bought over $2T of government securities, Case Shiller HPI 10 and 20-city composites rose a measly 0.1% and 0.5% respectively YoY in June of 2012.

Fed is pushing on a string.

click on charts to enlarge