Phoenix Capital Research's blog

These bonds are the benchmarks for “risk” in the financial system. Stocks, corporate bonds, mortgages, auto loans, emerging market stocks… everything you can name are ultimately priced based on their perceived risk relative to the “risk free” rate of lending money to the US for 10 years.

For 40 years, the financial world has experienced a bull market in bonds. What this means is that for 40 years, bond prices have risen while yields fell.  As yields fell, it became easier and easier for investors to borrow money.

So, globally interest rates are at ZERO or even negative and the markets have realized that QE doesn’t do much. What exactly does this leave for Central Banks to do?

This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.

Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.

The Fed managed to pull a rabbit out of a hat last time... by resorting to extraordinary policies. In doing so, it's used up most of its ammo. So there's no telling what will happen if we get another systemic deleveraging again.

Here we are now, two years later, and the ECB has failed to create the sustainable recovery that it promised. Because of this, in June of 2014, Mario Draghi implemented Negative Interest rate Policies or NIRP and hinted at launching a QE program

The market is extremely tired and the systemic risks underlying the Financial Crisis are in no way resolved. With investor complacency (as measured by the VIX) at record lows, the Fed withdrawing several of its more significant market props, and low participation coming from the larger institutions, this market is ripe for a serious correction.

The market has been so overbought for so long, that most investors were ignoring the clear warning signs that we were in trouble.

When you are leveraged at these levels, you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04).

The Fed wants asset bubbles because they hide the rot within the US economy. If the Fed didn’t raise stock or housing prices, people might actually start to wonder… “hey, why is my life getting more and more difficult despite the fact that I’m working all the time?”

One of the biggest games played by the bean counters in Washington in the US is the overstatement of GDP growth by understating inflation.

Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

The reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:

History is replete with the total failure of Central Planning. Whether one look to China or the USSR or the US today, Central Planning has never successfully worked.  It creates the illusion of stability in the short-term, but eventually the truth comes out: that it is a TERRIBLE means of deploying capital (both human or monetary).