Every now and then Zervos nails one. This one makes us think and plays right into my Code Red theme of currency wars. It is going to get serious in a few years. I really should follow this up with a letter at some point as the potential for things to get out of control increases with the dollar getting stronger and Japan and Europe pouring on the fuel.

"And from the current vantage point its very difficult to know how much of a tightening will occur in the US from rate raises, and how much will come from international forces. We could have the DXY at 125 and the FF rate at 1 percent in 2016. Or we could have the DXY at 100 and the FF rate at 2.75%. Both could be internally consistent with the same GDP, unemployment rate and PCE inflation forecasts. The difficulty as we look ahead is that pin pointing expectations for US rates and FX becomes increasing complex. We have to factor in policies from Europe, Japan and EM. The easy days of simple forward guidance are behind us. Its not just a BTD world because the Fed will always do more when things go wrong. In a world where growth recovers globally and policies normalize there are many asset price formations that could arise. There is no simple form of forward guidance."