You are referring to the spread between the FED funds rate and 10 years bond interest rates. 0% vs 2.5%; and how that differential will manifest itself in bond asset devaluation when Yellen starts raising interest rates.
Expected Fed fund rake hike target for 2015 is 1.00%, for 2016 is 2.25%... and long term, they want to hit 4% for the FED Fund rate. Which means a 10 year bond interest rate increase from 2.5% to 3.50%(for 2015) to 4.75%(for 2016).... and when the fed fund target of 4% is eventually hit, this will result in 10 year bond interest rate of 6.50%.
[This is also why those on this thread recommending buying current CD rates are mistaken. The interest rate is designed to go higher starting from 2015, why then would you want to be locked into a 5 to 10 year CD yielding shit like 2% currently? why not wait 2 to 4 years in? say in 2017/2018?]
Perhaps, this paint a clearer picture.
The negative to this is that, the movement of 10 year bond interest rates from 2.5% to 6% is going to result in massive loss of asset value for the current bond holders(not future bond holders). It has an inverse relationship. Rate goes up, price of asset goes down. A lot of investors hold these because of the incessant financing at low rates in an attempt to re-inflate the housing market and keep deflation at bay.
All these acts by the FED and the BOJ are attempts to prevent deflation and increase inflation targets. BOJ is aiming for an inflation target of 2%. Abenomics of Japan has turned the BOJ into one of the biggest bond asset management institution in history. Creating a massive bond bubble. How will BOJ extricate themselves from this is beyond me.
Also, the lowering oil prices will apply some deflationary pressures on prices....
But overall, your best bet is long USD as much as you can, any bounce in the EUR/USD at monthly chart levels are opportunities to short EUR with more USD. Every break of monthly levels in EURUSD, USD/CHF, USD/HUF, USD/PLN, USD/CZK, USD/SEK, USD/DKK, USD/TRY are good opportunities to short them all using the USD. It is open season on europe's ass.
And no, i dont think OIL companies, especially, oil exploration companies are a good buys at these levels, regardless of how *cheap* they look. This oil scenario hasn't happen before since 1970s/1980s. In fact, i wont even consider buying anything related to oil until mid-2015 or much later. I can wait. Patience is a virtue in the financial market. Remember, a stock is never too low to keep falling... and the market can be irrational longer than you can remain solvent.
I will not touch leverage ETFs with a 10 feet pole because of their rebalancing. I can get into some ETFs, but here is the caveat emptor: the bond market scenario that i described above will affect even the ETFs(especially, leverage ETFs).
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