Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Profit from Fed’s Easy Money Mistake by Shorting U.S. Treasury Bonds

Interest-Rates / US Bonds Nov 20, 2013 - 12:57 PM GMT

By: DailyGainsLetter

Interest-Rates

Mohammad Zulfiqar writes: The Federal Reserve has been very accommodative. Its goals are very simple: it wants economic growth in the U.S. economy. As a result, the Federal Reserve is taking extraordinary measures, printing $85.0 billion a month and using it to buy U.S. bonds and mortgage-backed securities (MBS). The hope is that the money will go to the banks, which will lend it to consumers who then spend it, leading to economic growth.


Sadly, the problems continue to persist in the U.S. economy, leaving economic growth still far from sight. The techniques used by the Federal Reserve aren’t working: the unemployment rate continues to be staggeringly high, troubling trends have formed, and the inflation continues to be low—threats of deflation loom.

Given all this, one would assume there might be something else that the Federal Reserve can do. Unfortunately, instead of using different measures to fight the problems in the U.S. economy, the Federal Reserve is planning to keep on doing what it has been doing for years now. I believe the techniques used by the Fed will continue on for some time.

Here’s my reasoning: in a testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, the newly nominated chairman of the Federal Reserve, Janet Yellen, said, “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time.” The Federal Reserve realizes the problems still remain, but no other solution was provided. (Source: “FRB: Testimony—Yellen, Statement before the Committee on Banking, Housing, and Urban Affairs—November 14, 2013,” Board of Governors of the Federal Reserve System web site, November 14, 2013.)

If the Federal Reserve continues to print money in the form of quantitative easing, don’t be surprised to see more of the same—key stock indices will head higher and bond yields will continue to decline.

But what happens when the Federal Reserve starts to put the brakes on its asset purchases? We saw a minor episode of it in May; the bonds market witnessed a very noticeable sell-off. This time around, I wouldn’t be surprised if the sell-off is much bigger.

Dear reader, you have to keep in mind that the Federal Reserve became a massive buyer of bonds. Its balance sheet is huge, and closing in on $4.0 trillion. If it sells the bonds it has, the bond yields will go high, and if it keeps them, the current money printing will result in higher inflation ahead.

So, how does one actually profit from the actions of the Federal Reserve?

As long as the Federal Reserve continues to print money, investors may be able to profit from exchange-traded funds (ETFs) like the iShares 20+ Year Treasury Bond (NYSEArca/TLT). Essentially, this ETF buys long-term bonds, so as the Federal Reserve continues to buy bonds, their prices will continue to go higher, and investors will profit.

Once the Federal Reserve moves away from its money printing, ETFs like the ProShares UltraShort 20+ Year Treasury (NYSE/TBT), which shorts long-term bonds, will be able to provide investors with profit.

This article How to Profit from Fed’s Easy Money Mistake was originally published at Daily Gains Letter

© 2013 Copyright Daily Gains Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in