The Central Banker Empire Strikes Back

They are really try to sell the fact that they can tighten liquidity and raise rates, aren't they? Both the Fed and their Euro counterpart are really trying to push the fact that they will raise rates and possibly siphon off liquidity. The ECB is supposed to raise rates from 1% to 1.25%(Wow, 1.25, how will the banks survive borrowing at 1.25). The Fed had one of their minions come out and say they will raise by 75 bps on the fed rate.

Our US banks don't even care what you make the fed rate. The Fed gave them well north of $1T free cash to park on their books. They don't ever have to go to the window again. Well, all those variable rate mortgages on the books still care. They care, a lot! The treasury cares what rate they have to pay back interest at. They also care, a lot!

The Fed claims they are even thinking of scaling back treasury buys. The only problem is since the Fed is basically the only buyer of treasuries this year, who is in line to pick up the pieces?

My feeling is everything the Fed says or does has a very specific planned out reason to it. They say they are going to raise rates later on this year to possibly put a lid on commodities and to possibly get suckers to buy up treasuries now, in anticipation of fiscal tightening(and therefore, appreciation on any bond purchases in the meantime). Whether they really planned to, or not, doesn't even matter. Expectations are what they are trying to manipulate.

The Fed absolutely, positively, without a doubt, cannot let interest rates get away from them since they have so much interest rate risk on their books. The US treasury feels the exact same way. Granted, the treasury needs them low so they can continue to borrow.

So moving on to trading. I was quite perplexed to not see the US long bond fall hard this week into a rising market. I don't think I understand why. However, I still plan on holding my puts here since I see a few catalysts coming up. UUP managed to run up almost to 22 on Friday before giving back the entire gain! That one hurt. I have a lot of calls, a lot.

I timed out my GLD 139 puts pretty well on Friday and came out at a 300% gain but lost out on the SLV 36's I was trying to hold out. PM's rebounded nicely on Friday afternoon. With all of this positioning by the central banks, it would appear IF PM's were going to show weakness that it might be now.

Gas is almost back up to $4, again. Yet, the Fed pinky-swears that there is very, very low inflation.

Again, on Friday AM:

-Dollar up

-Equities up

- Long bond up

WTF? How does that keep happening! It faded, of course.

Something has got to give.

I think this will be a relatively slow week in the markets. However, you never know anymore.