Eulogy to the Fed

The only rational explanation left is election politics. This is the only factor with a hard expiration date. And it neatly explains the sudden shift of focus to unemployment rate. Remember how everyone was saying that no president gets re-elected when unemployment runs above 8%?

Now this is truly sickening.

I dislike Barack Obama and Mitt Romney equally. It's not about them individually; I'm sure they both are great guys. It's about the party establishment and politicking. As long as it's not George Bush or Sarah Palin.

And I understand the Fed's independence can never be 100%. But there is a meaningful difference between a clandestine lover and a streetwalker; the former pretends to have a sense of shame and tries to protect the partner's ego.

OK, now we got the ranting part taken care of, let's get back to trading. RIP Fed.

In the short term, risk-on seems quite certain. Long gold, e.g., via SPDR Gold Trust ETF (GLD) , stocks, e.g., via SPDR S&P 500 ETF (SPY) , commodities, e.g., via United States Oil Fund ETF (USO) , PowerShares DB Base Metals ETF (DBB) , or PowerShares DB Agriculture ETF (DBA) , short USD, e.g., via PowerShares DB US Dollar Index Bullish ETF (UUP) or the bearish version (UDN) and long every other major currency.

Long Gold

I was a bit nervous with my speculative gold long before; now I added to it right after the announcement and remain quite comfortable with it. Of all the possibilities I think gold is the safest and purest QE3 play. And this time it's about both inflation risk and the unmitigated lunacy of fiat currency care takers. There may be dips in the short-term; consider them gifts for adding on the cheap.

In the medium term (after election to a year out), I expect inflation to actually take root this time. Even though the U.S. has the most capacity in the world to avoid inflation, we're not immune. As all commodities go up, and import price rising along, we will have to eat the bitter fruit of inflation export.

Nominal GDP may pick up (funny how FOMC predicted slower growth in 2012 but improved growth in 2013, taking into consideration QE3 I suppose) but real GDP may not. It's a long way from lower mortgage rates to more jobs. In fact, if QE has any effect on employment, there must be a time lag of at least four years since we still haven't felt the effect of QE1 yet. Get rid of cash and stock up toilet paper if you must; at least it will hold value better.