An interest rate wipeout coming (update 1)

So we have 2nd day rally, on the premise that the Fed will continue printing (already recent figures Federal Reserve money supply M1 rose by $18.3 billion to $1.817 trillion, while M2 rose $10.3 billion to $8.809 trillion) and the European Central bank, that could be argued is now a high risk inducing engine for Europe, as it gobbles up toxic European sovereign debt. The EUR rallied on confidence rather than logical fundamentals, that being that as long as you have USD weakness you'll have exported: inflation oil/commodities, currencies bubbles form against USD weakness. The interesting point there is that Germany, that is now become a weak shell ( politically) is allowing it's country to backstop and guarantee bond transactions/purchases and underwriting, in other words Germany is the insurer of European 'toxic' debt as it is bought up by the ECB. The EUR hasn't responded to this liquidity pump by the ECB by selling, but rather it was bid as the crazies at the US Fed feel vindicated that their $600billion print job is justified. The commons excuse, 'they are doing it, so we can too'. Point being is the new mandate for Quantitative Easing 2 from the Fed was to lower UST yields. But this is the best bit, yields are going UP!.

What this means of course is that stocks, yes you can by on a dip (but watch your margins/leverage on open sells), will correct on a severe downside (only to rally again of course within a hrs/day), and as discussed in The Dow successfully creates another 'bulltrap', on the fact that liquidity will naturally tighten as the markets starts to lock in upward interest payment/s measured against mid/long term bonds. Even short dated bond yields are going up.

The point? Both the European Central Bank and the Federal Reserve bank of America are encouraging an interest rate wipe-out, that will begin if yields go ballistic on UST's (and of course EZ debt). Their crazy idea of liquidity induced stock rallies won't mean squat (although good if you are into scalping/day trading plays), when oil/food and interest rates will all go up in tandem.

Operational costs for companies should suck profits away plus 'real' adjusted interest rates going upward, oil/energy costs etc. All will effect profits, market evaluations and thus stocks. Eventually all this money printing induced stock volatility and dynamic range trading i.e % sells at open /buys at close, a sustained correction of stocks will be due.

So in conclusion we are now going into a interest rate cycle, China will probably crunch hard on a current rate cycle; this is obvious with a 'bubble' property market. Regardless of what Trichet (ECB butnut) and Bernanke (Fed butnut) are capable of doing which is printing money, the further they encourage stock speculation the further yields will increase on bonds; which in turn means they have to keep printing to 'attempt' to offset yield blowouts on debt (EU PIIGS/EZ debt and UST's).

This can go on for awhile longer until oil reaches $90-$100 and China crashes, dragging the US and European into it's free-fall. Setting of widespread political/social turmoil in both Europe and America