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Bonds Are Right! DoubleLine's Gundlach Warns Fed "Has Been Wrong For So Long... Offers No Value"
History is on the market’s side, says DoubleLine's Jeff Gundlach, noting the Fed’s forecast for how much benchmark rates will rise is still too high, even after central bankers lowered their estimates last month. BlackRock’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction, claiming The Fed has "a tremendous ability" to send bond yields higher. But as Bloomberg reports, "if the burden of proof is on anybody, it’s on the Fed," and for now, as Gundlach exclaims, The Fed has "been wrong for so long," that their forecasts have been literally of no value, "the market’s pricing has been closer."
Despite policy-makers including New York Fed President William C. Dudley suggesting there’s something wrong with debt yields that aren’t climbing as the economy recovers, Bloomberg reports traders are signaling there’s little reason long-term Treasury yields can’t, and won’t, stay depressed...
Perhaps the bond market’s most important message is that the Fed’s own forecast for how much benchmark rates will rise is still too high, even after central bankers lowered their estimates last month. The market is calling for 2 percent rates in 2018, almost half what the Fed sees.
The Fed has “been wrong for so long,” said Jeffrey Gundlach, founder of Los Angeles-based DoubleLine Capital, which oversees $73 billion in assets. “Their incremental input in what will happen in the future has been literally of no value, because the market’s pricing has been closer.”
But not everyone agrees with Gundlach...
BlackRock Inc.’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction. Treasuries gained for the fifth straight quarter ending last month, the longest streak since 1998.
The Fed has “a tremendous ability” to send bond yields higher, particularly after debt purchases ballooned its balance sheet to a record $4.5 trillion, said Rosenberg, chief fixed-income strategist for the world’s biggest asset manager.
“We don’t think the Fed needs to worry about a conundrum 2.0,” he said.
The dilemma is reminiscent of the so-called “Greenspan conundrum” of 2004, when long-term yields kept falling even as then-Fed Chairman Alan Greenspan ratcheted up borrowing costs more than 4 percentage points. The market thwarted his attempts to tighten credit and curb excesses that contributed to the worst financial crisis in 80 years.
“If the burden of proof is on anybody, it’s on the Fed,” said Stewart Taylor, a Boston-based money manager at Eaton Vance Management, which oversees $86 billion in debt.
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"markets" -- LOL!
" fed forecasts " -- LOL !
It's a Trap!
Liquidity trap that is
The sheer arrogance of Central Banks to pretend they can "fix" the global economy is astounding.
Nothing seems to make much sense any longer. All that seems to matter is that someone somewhere floats the idea of MOAR intervention...
FUBAR.
They're not trying to 'fix' anything. That's the cover story. Reality is somewhat different.
Would you care to illumine this forum as to what that reality is? What is the Fed trying to do?
Well, first of all the Fed is an unnecessary entity, it tries to regulate/set the monetary policy and the "markets" which hinge on the very same policy. The irony here is that once a central authority regulates a certain segment of the market then there is no "market," i.e. price discovery. Hence, the Fed acts as a transfer-of-wealth instrument by creating inflation and via loose monetary policy then when it tightens the policy deflation sets in and the "elites" start buying assets at inexpensive prices, hence now days you have huge conglomerates and TBTF banks and one of the largest wealth gaps in history, and it is all by design. So those who think this will go on, will be surprised, because the second act of this theater is the crash where the rich buy assets pennies on the dollar.
"Hence, the Fed acts as a transfer-of-wealth instrument by creating inflation and via loose monetary policy then when it tightens the policy deflation sets in and the "elites" start buying assets at inexpensive prices, hence now days you have huge conglomerates and TBTF banks and one of the largest wealth gaps in history, and it is all by design. So those who think this will go on, will be surprised, because the second act of this theater is the crash where the rich buy assets pennies on the dollar." - Gambit
You paint a scenario here where the Fed (via a loose monetary policy) intentionally creates massive wealth inequality before it allows a price crash to occur whereby the wealthy can scoop up assets at fire-sale prices. That is interestting. However, such a scenario would almost certainly end with massive civil unrest. Do you suppose the Fed then intends for Uncle Sam to declare Martial Law and seize complete control?
Not necessarly, the average joe doesnt realize how this works. They just think it's the "market" when their 401Ks get decimated. Collectively everyone will take it in the ass much longer than most here on ZH think. Not until most have lost everything and have nothing to lose will they have the balls to start civil unrest. Till then no Martial Law/Civil unrest.
Start working at home with Google ! Its by-far the best mixed bag of goods I've had. Last Thursday I got a trademark new Bmw since getting a check for $6474 this - 4 weeks past. I began this 8-months ago and immediately was coming with house at least $77 per hour. I work through this connection, go.to tech marker for work detail.... www.globe-report.com
Oh well, the Federal Reserve brought this upon themselves.
I don't understand why any rational human being would listen to the fed. They have been consistently wrong about everything over the last two decades, and everything they say they'll do, they don't. They aren't, nor have they been, credible for a very long time, if ever. It's all bullsshit propaganda. Perception management. Nothing more.
https://m.youtube.com/watch?v=-WnHd-eK56o
The Fed is so deathly afraid of that first 25bps off the bottom they're literally frozen.
I've never seen them so afraid of slowing the economy, which means that's not what they're afraid of.
They're afraid of some little rehypthecation chain breaking down, quietly and without notice some random Tuesday evening, and unleashing the bear in the china shop a la 2008 again.
MMMMMMM, reubens.
They're starting to piss me off. I've never seen them act so a-skeered. Things must be more serious than we know.
"The Fed has a tremendous ability to send bond yields higher...after debt purchases ballooned it's balance sheet"
Actually, NO, it doesn't.
Go back to QE1,2, and 3 and look what actually happened. As QE began, the Fed BOUGHT bonds and yields ROSE. This is because of asset allocation shifts out of Treasuries into Equities. Likewise when the Fed ended each QE and STOPPED BUYING Treasuries, yields FELL.
IF/WHEN Fed actually SELLS Treasuries, Yields will fall as all the money in Risk Assets floods into the perceived safety of Treasury Debt.
Yields are where they are IN SPITE of the Fed, NOT BECAUSE of the Fed. IF/WHEN this sorry excuse for an economy is ever taken off life-support yields will be way lower than they are now.
Regarding the Fed's ability to forecast, ZH has highlighted the Fed's Rate projection history so many times it's not even funny any more, just sad.
So. let me get this straight. The bonds, whose values have been artificially suppressed by the FED, are more right than Stocks, which have been artificially inflated, by the FED? And, the FED is wrong, either way.
How about this, they are both incorrect, and meaningless.
Ponder this:
The bonds are future promises of cash flows to be extracted from future GDP.
The current stockpile of promises (financial assets, bonds and stocks) to current GDP.
Unless we have a miracle technology, there is no way teh GDP can grow high enough to make the promises good.
So the sovereigns are the least able to repay the debt in history (i.e. highest debt to GDP ratio) but the yields are at lowest yields ever.
People buy an asset because they expect it to go higher, not because it has value. The bonds have very little value.
The only way we have deflation is if the Fed decides to not bail out the Gov by letting the overindebted default (consumers and gov) through fall in prices, fall in nominal GDP while debt are in nominal terms. It never happens on Fiat money. Any other scenario is ?... inflation.
anyone with a lick of common sense knows this shit aint fucking normal. how on earth can u justify SPY trading 60% above their all-time high with ZIRP about to enter year 7 + the largest commodity on the planet (oil) just got cut 55% since the summer? the fed is completely fucked if they even attempt to move interest rates. EVERY FUCKING TIME they even mention it the market freaks out, the fed shits themselves, and they parade out their penguins to talk the market back up. that says it all. ive been listening to these ass-clowns on CNBC all fucking day talking about lift-off and the fed will do gradual rate hikes after the first - 1 guy said the fed was gonna do 8 consecutive hikes? are you fucking high? the fed will go MAX 1.00% IF they even attempt to raise. its so friggin clear they are playing stock market and if they are this fucking scared by the market reaction when they are talking about moving rates, what happens IF they move to 1% and the whole fucking planet who has been hiding out in dividend payers, REITs, utlities, etc. (u know, those "stocks with bond-like characteristics" - better way of saying "mispricing risk & forcing people into asset classes they don't belong for a fucking reason"). theres gonna be a "great rotation" alright - out of dividend stocks and into fixed IF they ever even whiff that intersection where dividend yield on the S&P500 meets AAA investment grade paper.
+ 60 trillion notional in interest rate derivatives.
how can the fed start selling it's zombie portfolio without admitting it is insolvent and being forced to print qe4 to buy it's own zombie debt when none of the fed zombie cartel banks are left to buy the zombie debt.
the fed will literally be forced to directly lie about its own portfolio marks and commit a fuck ton of wash sales to pretend there exists a market.
oh ....wait. that's been happening more or less for 8 years!!!!!!.
so now what?
10,20,perhaps 30 years until hyperinflation and total destruction of the money supply. of course, there might be some bullshit 6 month to a year 'deflationary panics' into the end.
currencies never die through deflatoin. we know how this story goes. somehow people simply are never willing to accept it.
the dollar is going the way of the pound. and unlike england in ww2 and now, the ussa has the nukes, the natural gas, and the population and land mass to deal with the debasement of its own currency.
the only threat, if there is one, is the american people. and i hardly consider them capable of influencing their government.
My belief is that we are being manipulated to support the preplanned demise of the Fed, which will then be sold as the American people getting their way and as a result of getting rid of the Fed more hardship occurs than we, "America" have ever experienced.
After another period a preplanned solution will be presented with a global financial authority that will be sold to the people as something that will prevent the hardship from ever occurring again. They believe they will get their one world government this way.
... and to solidify thing, they keep us in fear by dropping a couple of preplanned kinetic weapons (that they call "asteroids"... which they have been preparing us to accept) on us from orbit and hit us with a preplanned "alien" invasion (which they have just started preparing us to accept).
There are no aliens. There is only us and we are them. We are everywhere ... or so it seems. Why would it matter which meat sack we wear? ... if we wear one at all.
Crazy stuff, eh? Only someone with a vivid immagination would think of such crap.