Bank of America (NYSE:BAC) Says Unwinding of Reflation Trade Could Accelerate

After the announcement by Ben Bernanke concerning implementing another round of quantitative easing, investors have had a nice bump up in profits as expectations that inflation would rise began to be fulfilled. Bank of America (NYSE:BAC) says that could be temporarily halted going forward.

“Reflation trades have gone a long way since Jackson Hole, and positioning alone makes them vulnerable. We estimate that the aggregate position of QE2/reflation trades now sits at a three-year high. The unwinding of the reflation trades that started with the sell-off in Treasuries is now spilling into the cyclically sensitive assets, may have more room to go,” said Bank of America.

“The size of these positions no doubt reflects the strong consensus that easy U.S. monetary policy and emerging market decoupling will keep U.S. interest rates low and global growth strong,” the bank wrote in the note. “However, vulnerability is beginning to show, and further position unwinding seems increasingly probable as we had into year-end.”

Assets which benefit from inflating the economy through printing money, including commodities in general, and gold, have fallen back since November 3.

There are other factors involved, of course, like the EU sovereign debt crisis and uncertainty as to China and how they'll battle inflation.