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Into The Unknown
Submitted by Tim Price via Sovereign Man blog,
Strange things are happening in the bond market.
Few of them are stranger than the reports Jeremie Banet, a French fund management colleague of former Pimco executive Bill Gross, quit the bond business altogether to sell croques-monsieur from a food truck.
Bill Gross, whose management style has been described as “bullying”, had reportedly told in front of Pimco’s entire investment committee that, “I never understand what you’re saying. Ever.”
With those credentials, Monsieur Banet is supremely qualified to become the next chairmen of the Federal Reserve. And if so, he has his work cut out for him.
Consider the sort of volatility that the 10-year US Treasury experienced on 15th October.
Having begun the day sporting a 2.2% yield, the 10-year note experienced an extraordinary surge in price that took its yield down briefly towards 1.85%.
Later in the same session the buying abated, and the bond closed with a yield of roughly 2.14%.
During the same trading session, equity markets sold off aggressively (the UK’s FTSE 100 index, for example, closed down almost 3% on the day).
What accounts for such melodrama? Analyst Russell Napier takes up the story:
“On October 15th 2014, if only for a few short minutes, market forces broke out and the failure of central bankers was briefly evident.”
“There is a very simple lesson that when the markets finally break through the manipulation they move to price in deflation and not inflation. This is key because it means financial repression has failed.”
These days, you don’t tend to hear the words ‘failure’ and ‘central bankers’ in the same sentence (unless the topic happens to be Zimbabwe). But perhaps the omniscience and omnipotence of central bankers is somewhat overstated.
On October 29th, the US Federal Reserve followed a long-rehearsed script and announced that it had “decided to conclude its asset purchase program [also known as QE] this month.”
The Economist’s Buttonwood column described it as “Letting go of Daddy’s hand,” and cautioned, “[W]e may indeed get to see QE4 rolled out. Daddy might have let go of the market’s hand for the moment but he’s still close by.”
That coinage nicely speaks to the juvenilisation to which markets have been reduced during six long years of financial repression, interest rate manipulation, and the unprecedented expansion of central bank balance sheets.
Only the asset purchases have abated (for now): the financial repression, one way or another, will go on.
Whether the asset purchases have really disappeared or merely been suspended will be a function of how risk markets behave over the coming months and years.
And although our crystal ball is no more polished than anyone else’s, we would not be surprised to see petulant markets rewarded with yet more infusions of sweets.
Our fundamental views are clear: bonds are already grotesquely expensive, yet may become even more (we’re not investing in “the usual suspects” so we don’t much care).
Most stock markets are pricey – but in a world beset by QE (and prospects for more, in Europe and Asia) which prices can we really trust ?
By a process of logic, elimination and deduction, out of major, conventional asset classes, only quality listed businesses trading at (or ideally well below) a fair assessment of their intrinsic worth offer any semblance of value or attractiveness.
Pretty much everything else amounts to nothing more than paper, prone to arbitrary gusts from some very powerful, and very windy, bureaucrats.
We note also that former Fed chairman Alan Greenspan, no doubt looking to polish his legacy, managed to front-run the Fed’s QE announcement by pointing to the merits of gold within a government-controlled, fiat currency system.
Strange days indeed.
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I smell bull trap with craah to follow. ..oh wait the fed is still working
Belgium, it's still a country...damnit.
Deflation, in this context, is synonymous with economic collapse.
The treasury bonds that everyone runs to will then not hold value either and you face John Exter's final phase of currency collapse and a run to gold.
Deflation in one asset class, hyperinflation in most other asset classes..
And a stupefied society that understand neither...
Belgium might become a concept as well. A concept rotated around to different countries....
Singapore might be the next Belgium....
It all leads to currency destruction with it's hellacious consequences.
Drink the fucking Kool aid and shut up!
We need more anonymous billionaires buying bonds, the FED can't do it alone. Save us billionaires!
Crash coming fast and blame the elections or crash coming slow and blame new republican policy?
Decisions....decisons.
"Our fundamental views are clear: bonds are already grotesquely expensive, yet may become even more (we’re not investing in “the usual suspects” so we don’t much care)."
(treasuries) only seem expensive if you do not see what is coming
Deflation
What sense does "deflation" mean measured in a fiat currency?
Deflation vs real money, yes, that's coming.
Bonds will seem grotesquely expensive when you are repaid in near worthless fiat chits.
deflation first ... then?
depends on policy response ... and response from other countries
but i imagine same as last time ... another dose fiscal stimulus + QE ... blow more bubbles and get to where we are now.
The ENTIRE world is fiat
What would they view as alternatives?
Are there any alternatives?
Once deflation catches on, they will feel there is no alternative to exponential printing.
There is only one thing the Bankster PTB fear more than Gold, and that is Deflation....
No one has been paying attention to the massive $10 trillion that has been printed and yet bond yields and gold have collapsed. That can only happen in massively manipulated markets. High Frequency trading has conferred massive new powers on Central Banksters and they have used those powers to completely distort the markets along with their trillions of conjured fiat.
Coming back to economic reality is impossible without major dislocations if you have distorted reality for so long. But hope springs eternal in the human heart and the banksters had always hoped that they could return to normalcy without paying a price. That will not happen.
The last thing that Banksters want is normalcy?
Normalcy is not as profitable as manipulation....
If there's one thing I'm sure of, it's that the banksters won't be the ones paying the price.
People worry about the rise of the robots and how one small group of people in control of the machines can dominate the world.
The day has come and the robots are HFTs.
I must be on my second drink. Or third. Cognac goes well with massively manipulated markets.
central banking is like bull riding, the rider always gets
thrown off, it is just a matter of time. no?
one day you'll wake up and the us 10y will be < 1%.
just. like. that.
And gold will have doubled.
yep ... i'm a fan of "it will take a forever and a day to get here ... then all at once"
october 2008 redux, that is
One day we're going to wake up to a U.S. currency crisis in play, because another nation/s have decided to reveal to the world just how much gold is in their highly protected vaults. It's actually an 'option' that is more 'nuclear' than nuclear, hence, it will only come when the most opportune time presents itself - a time of precarious internal And externa (read: Foreign policy) weakness.
One day I won't wake up.
that cadre that we are not part of are well on their way being prepared for the collapse, the sheeple are sheared both ways.
What an awful article.
Treasury bond yields collapsed because there was close to $1 trillion in demand that day and there is little supply because primary dealers are too busy shorting treasuries and going long risk and institutionals who are holding treasuries will not sell them at these cheap levels compared to every other DM sovereign debt.
What you saw was a glimpse of where price (higher) and yields (lower) would be for our treasuries if we didn't have the world's principal central bank (actually the NY FED) colluting with futures market players to keep long-term interest rates higher and profitability guaranteed for our banks - not to mention keep their losing bets afloat in their gigantic interest rate swap derivative bets.
That's why they shut the market off for a while and only took trades on the phone - to keep yields from collapsing further and prices from going higher. Who do you think was on the other side of the line?
...close to $1 trillion in demand that day
a treelion? in one day? :/
yes, that is the total volume of treasury bills, notes and bonds traded at ICAP that day.
trading volume does not equal demand
Go buy yourself some gold then.
gold is boring. i'd rather have something that goes up in price, like treasurys.
But perhaps the omniscience and omnipotence of central bankers is somewhat overstated.
absolutely
business cycle has not been repealed
the oncoming recession will take many by surprise ... and cast doubt on Federal Reserve "power"
The bondholders ALWAYS get paid first.
First there was Obama phones,
Then there was Obama homes,
Then there was Obama Bonds, paid off better than GM Bonds (or were they Chrysler?)
Except when they don't.
GM anyone? I think I remember the bond holders got fuct when Dear Leader intervened and dropped the cash on his union bitches.
The bond holders get paid first when there is rule of law - there fixed that.
And rule of law has long since been a thing of the past.
Not at Government Motors
with a few exceptions...
Deflation doesn't have to be a bad thing. When your wages stagnate deflation is the only thing will save you. Things you need are repriced lower, and if you care to wait it out they will reprice again even lower still. It promotes cash hoarding and frugality.
However deflation destroys fake economies outright because they only survive on debt growth. Deflation destroys government budgets (tax revenues implode) and this in turn unwinds the welfare state. Lot's of people start to find productive things to do, to earn cash which every day buys more stuff. "Productive" here might mean digging ditches with a real shovel, but people will do it for cash.
But it hardly matters now, deflation was going to eat us regardless. The "inflation" they thought they had going on for the last 100 to 150 years was only really possible during a time of cheap oil. Without cheap oil (and it really is oil, coal and natgas don't count much) there is no energy ladder you can climb to the next entropic threshold. Your debt wealth becomes a crushing burden instead, loans dry up, nobody innovates, industries consolidate, everyone goes back to doing things they understand and that everyone values (construction, farming, simple medicine, handcrafting) instead of chasing after phantoms.
Say bai-bai to your global economy. Japan just put a katana through it. The unwind starts today, slowly at first but then growing like an avalanche for 20 years, at the end of which the dust settles and we wake up to find the world becomes a much quieter place.
I think it was Nassim Taleb or Marc Faber who in 2008 said that with this econmy a black swan event would not look like a derailment (the train's been running off track for a very long time). A black swan event wouid actually resemble a train magically jumping back on track, where it should've been.
... or quoting George Carlin: "If honesty were suddenly introduced into American life, the whole system would collapse."
There is No "Highly Protected" against the US MIC.........
"Gold" is Subservient to Military Power, Always Has Been, Always Will Be.