The Fed tightens on Wednesday and bonds rally. What the hay? GaveKal, Jeff Gundlach, and Jim Bianco nailed it in that every spec and their mother are/were short 10-year Treasuries. But this is only a small part of the story: The global bond markets are broken. There are no signals, there is no noise. Trying to infer any sense of economic or financial information from bond yields is futile.
In his latest webcast to DoubleLine investors, Jeffrey Gundlach echoed Hartnett, when he said that he expects the Federal Reserve to begin a campaign of "old school" sequential interest rate hikes until "something breaks," such as a U.S. recession.
Having taken a one month break since his latest February webcast, the time has come for DoubleLine's Jeff Gundlach to take the microphone again for his latest address to his investors (and everyone else) - titled this time "The Byrds", and hopefully provide some insight into this increasingly more confusing market.
"Inflation will soon become a main concern for investors... this will change the basic relationship between stocks and bonds and could set up the financial markets for severe turmoil, like in the late 1990s when the collapse of Long-Term Capital Management sent shock waves around the globe."
"The fundamental underpinnings of the long term bull market are at risk... interest rates have gotten way ahead of themselves... The market is banking on the idea that the Trump presidency is going to be a giant reflation trade... We will see if that’s what they get..."
"...debt is simply everywhere, at least to the extent we can see and measure it. Corporate and sovereign debt, of both the developed world and emerging market varieties, are at record levels. China’s debts certainly add to that record but who really knows to what extent? It’s the ultimate black box of leverage on Planet Earth... You cannot NOT worry about the Fed in this world...The simple truth is ending reinvestment would bring the bond market to its knees.”
"Not only do the five largest financial institutions in the US have a higher concentration of assets than they did before the financial crisis but it’s the largest concentration ever. So we’ve made the too-big-to-fail-problem worse because we have bigger, more systemically important financial institutions now than we did in 2007 – and nobody seems to know what to do about it... [EU banks] are acting irrationally. They’re not acting that way because they don’t believe it or they don’t understand it. So we’re still all trying to feel around in the dark as to what this means. And that means that the chance of an accident is very high."
So there you have it: Please no more easing, but only if easing means NIRP. As everyone has seen by now, more NIRP means a collapse in DB risk assets. But if "no more easing" means "even more QE", then go for it. And just like that we are back to square minus one, where central banks are called upon to fix the mess that central banks made, while holding banks and their flip-flopping "analysts" (and year end bonus paychecks) hostage.
"There is some truth to the phrase that the stock market has predicted nine of the last five recessions... but that is a much better track record than the consensus of economists. Every time the financial markets get volatile and messy like this it deserves attention because the markets are trying to tell us that there is a severe issue out there."
While most hedge funds will be glad to close the books on a year in which they once again dramatically underperformed a market which hugged the flatline courtesy of just a few stocks (even as most stocks posted substantial declines) and where "hedge fund hotels" such as Valeant suffered dramatic implosions, a handful of traders generated impressive returns for their investors and made billions by going against the herd.