Once again we have a weak dollar helping to push the price of crude oil even higher (see Bloomberg article, see first WSJ article on crude, second WSJ article on the dollar). In the CNBC video below, the technical analysts Nicole Elliott is absolutely beside herself, and even giddy at times, regarding the absurdity of the move in 2-year U.S. Treasuries. She eventually comes to the conclusion that the central banks have lost all control of the setting of interest rates, not to mention the long bond and interbank loans which have been outside of their control for a while.

Source: CNBC Video

Yet the 44.4 basis point move between June 5-8, along with the recent move in the Fed funds rates, are being dismissed by some firms that trade directly with the Fed, implying that it is simply speculators that are driving rates up (see Bloomberg article). Many dealers go on to predict that the Fed will hold tight well into 2010. Maybe so, but does it matter? While the Fed has recently retreated from seeking debt-issuing power to help control inflation (see Bloomberg article), the markets certainly are nervous about what they are seeing, regardless of the policy and wishes of the Fed. The TIPS market has also been active (see previous post).

Of course, what many traders are seeing and are nervous about begins with the unprecedented amounts of cash that is flowing into the world economies, much of which will eventually trigger higher inflation, higher taxes, and lower profit margins. To make matters worse, there is a feeling that much of the spending and printing is not necessary, and even worse, that no one at the Fed is really even minding the store. For instance, in the YouTube video below, one politician questions the Inspector General of the Federal Reserve. During the questioning, the Inspector General seems to have no idea where the trillion-plus dollars the Fed has put into the system actually ended up, or who received the money. There also seems to be no postmortem or investigation on the impact of not bailing out Lehman Brothers, or auditing of any off-balance sheet transactions.

Source: YouTube

Given the market reactions, the inflation-driven moves are beginning to appear a little more obvious (see excellent Michael Pento greenfaucet post), even if the size and timing are still under debate. Yet the moves can happen quickly. Just ask those trading the 2-year Treasury, or those who were looking to lock-in to a 30-year mortgage under 5 percent just a few weeks ago. This certainly seems encouraging for commodities long-term, and even short-term, regardless of the current rallies. Just think if demand actually catches up?