Bonds and Bernanke

Fed Chairman Bernanke has thrown the kitchen sink at the bond markets to keep interest rates down.
He’s shoved the Fed Funds rate down further — and kept it there longer — than any U.S. Fed Chairman of modern times.
He’s printed more money than any central banker since the Weimer Republic.
He’s bought more bonds than anyone in all of recorded history.
And he’s even tried to give the markets an extra bonus this month by promising to continue buying bonds despite the market’s expectations that he was about to taper his bond-buying extravaganza.
In sum, he’s done many times more than any money-printing madman since the founding of the Republic — all with the explicit purpose of pumping up bond prices and hammering down their yields!
So you’d expect that, with all these record-smashing Herculean efforts, he could have beaten bond markets into submission.
Not so!
Since July 24, 2012 — 14 months and 4 days ago — his entire operation has been misfiring and backfiring.
Bond prices have gone DOWN instead of up.
Long-term interest rates have gone UP instead of down.
And tens of thousands of bond investors around the world have been defying the Fed Chairman like a growing flock of mocking birds.
This isn’t just monetary theory. It’s a fundamental, real-world failure by the Fed to pass a simple smell test.
Nor is it subtle.

Sure, some bond investors breathed a temporary sigh of relief two weeks ago when they learned Bernanke was going to continue his bond buying bonanza for a while longer.
But now, even that relief is fading, as interest rates have turned sharply higher again.
Our advice: Don’t let anyone — the Fed OR the bond markets — make a mockery of your financial future.
Keep most of your money safe. Stash it in short-term instruments that are not vulnerable to falling bond prices. Then, when I give you the signal that rates have reached a peak, be ready to lock in some of the best yields in decades.