“Once you learn to quit, it becomes a habit.” Vince Lombardi Going short FIXED INCOME here. Macro note

I have been very long fixed income since early summer, but I am now out, and looking to go short: Short FIXED INCOME? , my friend Andrew Baptiste of MS also looking for medium term shortly in 10 year yield...Drew Baptiste of MS call on 10 year, and finally there is divergence in 10 yr yield:Divengence in yields


Here is some of the reasoning:

1. QE is priced in w. more than 50 bps move since last FOMC meeting (Real rates down).....Anything shy of 500 bln. disappointment on Friday.
2. Buy the rumor sell the facts: In my eyes Bernanke can not but disappoint(more than he normally does...) on Friday. His 'path' is no path - he is toast and he/they know it - they are involved in Einstein experiment: "....repeating the same experiment expecting a different result"... Bernanke needs to show some sign of of balancing act - (vs.Hoening and other non-QE members of FOMC). Bernanke and Dudley owns the FOMC right now, but data/market reaction is NOT PREDICTABLE in the way market trades.
3. Market correlations - market is trading at R-square of more than 70 right now - this is the norm in times of crisis not in time of "recovery" - do read this link: Unified Risk Theory but since FOMC minutes yesterday bonds stands out as NOT CORRELATING - keep an eye on ratio between Gold vs T.bonds as if broken down correction is coming...
4. Good and bad inflation. Fed is reaching for more inflation, what they are getting is bad inflation, i.e tax on consumers and corporations - as their policy, unlike Japan in 1980s and 1990s, have global impact. The QE is pushing everyone into commodities and asset with return of 1pc - its sooooo 2007 all over again.....  Commodity prices since August!!!!     Article on Bad inflation: Bad inflation?
5. Positioning - when FOMC moves from talking about QE (which is their strongest tool!) to enacting different dynamics comes into play: The game has started - no we need to perform - its like Super Bowl - there is 90% noise and the actual game only fills 10% of time/energy - boom its over-------  Friday will be KEY day for everyone in the markets.

OVERALL:

Market is probably under-owned, commodities is over-owned, fixed income is no longer the best put on the stock market, US dollar seen the low 1.40-ish- Goldman is long, Citi is long and the world is long - higher US rates vis-a-vis Europe is next cyclical move (Velocity is picking up!)....

I trust my models more than my macro - time is to scale out of fixed income - maybe this is start of Crisis 2.0, but its too early and the euphoria is reaching new highs :-)

Keep the powder dry.... and as always keep safe...