The Central Banks Still Appear To Be In Control (Or So They Think)

Tyler Durden's picture

Submitted by Clive Hale via A View From The Bridge blog,

2015 has started much as 2014 left off which should come as no surprise as markets care little for arbitrary changes in dates after all; so no predictions! Oil is one of many unknown variables including the fate of Greece the strength of the dollar the flight of Abe's third arrow relations with Russia and the greater Chinese slow down. Then of course we have elections in the UK which will be interesting in the debate but almost certainly inconclusive in the outcome. It has been suggested a coalition government might be formed between Labour, the Scottish Nationals and UKIP; if so I'll be catching the first flight to somewhere a long way off.
The central banks still appear to be in control; well they seem to think so. Now he is no longer in that particular club Alan Greenspan thinks things look a bit "risky". Well risk is what investing is all about after all, but what is this elusive "particle" orbiting our portfolios?
Some would have you believe that it's all about volatility. If it goes up and down a lot the ride will be bumpy but you stand to make a lot more money than in something that gives you a smoother ride. Looking back over the last 30 years or so that smooth ride would have been government bonds and for most of that period returns would have been better than equities. So a low risk portfolio should be stuffed full of them right? Yes indeed if your risk model looks purely at long term historical data and ignores where we are in the journey.
But markets have an enormous propensity to make us look like fools. This time last year the predictors were saying, to a man, that sovereign debt was hugely expensive and due a very significant correction as rates were bound to rise weren't they? If there is one data series that is consistently called incorrectly this is it - perhaps a reason why the largest component of the derivatives mountain is in interest rate futures!
So in the UK a gilt tracker would have made you nearly 15% against a pretty much flat equity market and the 10 year gilt now resides at a scanty yield of 1.6%. Over in Europe the 10'year Bund is at 0.4% and everything under 5 years duration pays a negative yield. Yes investors are willing to pay a premium just to get their money back!
As the chart of the 10 year Treasury yield shows, we have come a long way in the interest rate journey and whilst further gains are possible can yields go much lower. If we are going Japanese, and the Germans already are, then of course they can. Ten years ago, having 50% in investment grade bonds in a portfolio for a cautious investor would have been eminently sensible especially with one’s attention in the rear view mirror, but today?
The major unintended consequence of government and central bank intervention since Volcker's stand against inflation has been to generate its nemesis; deflation. With interest rates near zero in the major economies, there is nowhere for rates intervention to go to provide a stimulus. Strangely the answer must be higher interest rates. We will then see some "creative destruction" which is what the financial system needs to reset and start a proper economic cycle, but with the investment banks, who stand to lose the most, controlling the strings (just how do you think the US Budget bill got changed to allow banks’ derivative positions to be included in subsidiaries covered by FDIC insurance? ie the taxpayer covers their losses) we need stronger hands at the tiller than a coalition of "politicians" or a lame duck president. We need somebody with balls and I don’t mean the second fiddle in the Ed Miller band... any volunteers?

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MarketAnarchist's picture

I love reading about negative interest rates.  

It reminds me how you can boil a live frog....

Slowly lower the interest... slowly slowly... until the peasants pay you to steal from them...

zorba THE GREEK's picture

Oh crap!!!.....This is going to end painfully....unless you are all in PMs and guns.

ThirteenthFloor's picture

Understatement of all time. That is why the empire is stealing (collecting all the gold) from that underneath the Trade Center, Libya, Ukraine, Mali....and on and on. Kicking the can for us, means stealing a little more gold.

Will they confiscate the public gold ? Most likely.

Keyser's picture

Molon Labe... They can come get it, if they have scuba gear... Damn boating accident..

Supernova Born's picture

Nothing for nothing leaves negative interest rates.

(...was that a song?)

mvsjcl's picture

"...a proper economic cycle..."


Oh, you mean the glut/purge thing that bankers do in order to steal from you? What's proper about it?

Refuse-Resist's picture

"Will they confiscate the public gold ? Most likely."


They're gonna need a lot of scuba gear and unmanned submersibles if the comments here are of any worth.



A Nanny Moose's picture

..or horse shoes, hand grenades, Nukular weaponzez.

Harbanger's picture

That slow cooked frog has been done and finished for a long time now.

A Nanny Moose's picture

...but gummint has still found a way to tax it.

Government logic = If it moves, shoot it. If it still moves, tax it. If stops moving, subsidize it.

spinone's picture

All the water boiled out, and the frog is burned and crispy

Bush Baby's picture

A sucessful parasite is one which does not kill it's host - they have much to learn

RaceToTheBottom's picture

it is successful. it is treating WS very well. The symbiotic relationship is fine with WS and the gov.

What has happened is it has made the middle class more like the lower class. The lower class is like a cost. They are hurt the more it thrives, so they assist in its suicide. Same with the middle class since the middle class is paying less and less of the total % of taxes.....

Bloppy's picture

They've created the perception they're in control, but that has been slowly chipping away (particularly in Europe!)


Touchy WaPo columnist: I hate House of Cards, it's making us look bad!

CHX's picture

+1. So true, as real interest rates have been negative for a long while already. 

TeamDepends's picture

Well, we could just go back to honest, PM- backed money. (guffaws all around)

Bossman1967's picture

that would be me and so far so good this year 3 weeks since the PM have started week not in the minus and the start of day not going minus where are the manipulators did they all commit suicide?

Harbanger's picture

"Honesty is the first chapter in the book of wisdom." - Thomas Jefferson

ThirteenthFloor's picture

Honesty, is not in a central bankers vocabulary. I wanted to comment on Greenspan the lying sack of shit. First while preaching the danger of MBS, the FRB was buying them all day long. Greenspan sold is soul to the devil, and probably quite cheap.

CHX's picture

At the end of the day, when it all fails. what else is there other than the metals to bail out everything and every fiat currency under the sun? Gold and silver ARE money, and this old - and by many forgotten - truth will come out again in every corner on the planet.

pelican's picture

How does on place that amount into the system get deflation? Perhaps it isn't be given to the masses to spend?

The rich get richer and shot the golden goose.

madbraz's picture

Better to lose a couple percent on a negative yield than to lose 80% on stocks or on bank deposits of failed banks.  No brainer. 

mickeyman's picture

The deflation had already set in by the end of 2009, and after four years of pumping QE variations, we returned to the very same deflationary trend, having done nothing but waste time and trillions.

disabledvet's picture

In the absence of a good standard

God sets the price...


Because "prices" themselves can only be set IN THE FUTURE.


Deflation is setting in?  Really??



What is setting in is an inability to repay a debt....NOT deflation.


No society has ever failed because of "free energy."


Oil at a buck a barrel will absolutely find a use.  Especially if natural gas prices collapse again too....

Stained Class's picture

Long live Paul Volcker! I got a job as a stockbroker in 1983 and quit in 1988 because I thought the whole thing was a mess. Only after reading Stockman's book did I realize Greenspan was a turncoat for the moneychangers. Boy, did I pick the wrong day to quit $1/share commissions....

zorba THE GREEK's picture

Long live Paul Volker's rational ideals....oops...too late, rationality is dead and so are we.

Arthur Schopenhauer's picture

I was also a stockbrocker from 1983 to 1988. I wonder, were you and I in the same boiler room all that time and never knew each other?

Refuse-Resist's picture

Our very own "Wolves of Wall ST"?

I kid I kid.

But that movie was pretty funny whether it was accurate or not.

RaceToTheBottom's picture

Precisely why we cannot let the Greenspam rewrite history.


Livermore Legend's picture

Excellent Link.......

A very Smart Man who has one of the Best Grasps of what is going on....

And likewise, he dispels "Manipulation":

"...... The Manipulation Theory was invented by those who are afraid to face the facts squarely. We should know better: no valorization scheme ever works for any significant length of time for any commodity......


And unlike many others he understands the Crystal Clear Message of Velocity.....


Stained Class's picture

Inflation, deflation, lets talk about GREECE. The citizens have left the government out to dry, die by the payrolls of their bloated nepostism. Greek citizens are notoriously independent and sucessful- they will deprive the govt of any revenue. Starve the Beast! Who cares if they stay in the EU or not, only the corrupt govt cares. The Greek citizen will get along just fine.

The Central bank, or the ECB, has no power on the Greek Citizen. Only on the Greek Politician. 

kchrisc's picture

The thing about "printed" wealth is that once out in the economy, like a boomerang, it comes back to you. However, unlike a boomerang, it comes back FOR you.

My guillotine and I are watching, and waiting.

The banksters need to repay us.

A Nanny Moose's picture

We need somebody with balls and I don’t mean the second fiddle in the Ed Miller band... any volunteers?

I no longer seem to be using mine for their intended purpose. Perhaps I am the most likely candidate? After all, having family is simply a point of leverage.

tok1's picture

the bubble is in the bonds, given how much money has been created stocks/property/gold must be well undervalued realtive to USD/JPY and soon EU (if they do QE... The prob is people are looking at the prive of assets relative to periods when there was no QE... (ie no central bank buying of bonds to increased the money supply on a permanat basis unless they sell which they never will)...So people need to thing where prices should be relative to old numerics plus the QE,,,impact which is impossible to calcualte. Individual commodities can go up or down becuase their own supply has increased/decreased.. 

They US/Saudis crushed the oil to push Germany / EU to ease.. When people wake up and realise zero or negative interest is not a good investment.. their not going to buy back in a 0.25 or 0.50 ie once reality sets in.. the zero bonds will move more than expected... 

this period looks most like late 1990s when oil droped from 20 to 10, causing equities to eventually spike up  and tres to sell off before all crashing in 2000....

Atomizer's picture

Central planner college indoctrination and debasing the USD to expand on a debt currency system to expand GDP weighs heavily on Federal Reserve shoulders pinned at ZIRP. Let’s have a look, shall we?

Penn and Teller Bullshit - College Part 1 of 2

Penn and Teller Bullshit - College Part 2 of 2

Debugas's picture

banksters will kill anyone (including any president) standing their way

JRobby's picture

And so then, logically there will be only one way to remove them from power.

Flying Wombat's picture

Anyone want to start an "office pool" on the three options this "source" says the ECB is considering?  j/k.  Just reviewed this article and posted it for TND.  It's a good read:

Unknown Source Reveals ECB’s Three Methods Of Additional QE

TND Guest Contributor:  Nathan McDonald | Sprott Money Blog |

Mike Honcho's picture

It's crackhead economics: mo' mo' mo' until there is no mo'