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"Everything's Crashing"
The writing has been on the wall for a few days/weeks, but it appears a combination of global FX and equity turmoil and domestic corporate debt market collapse is finally starting to roil US equity markets. The Dow is down over 600 points in the last week or so, bond yields are collapsing, the USDollar is tumbling, crude is crashing, and junk bonds are in free-fall.
As expected in the aftermath of the Third Avenue gating (and as previewed weeks and months ago) Junk debt is getting destroyed:
And stocks are catching on:
The Dollar is getting dumped:
But crude is still carnaging:
And traders are rushing into bonds for safety:
And bidding paper gold...
This won't end well:
Remember, a 25bps rate-hike means up to $800bn of liquidity withdrawn from markets. That is starting to get "priced-in."
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That's what happens when you get in arrears!
Buy stawks!
Woo how let's fire up those 4 door 2 ton 12 cylinder convertible
gas guzzlers!
STUPIDITY is the new normal in the financial world.
What people do not understand - is that markets respond logically to interest decisions and QE.
Remember what happened when ECB issued QE? The Euro stopped falling and reversed. Why?
Because Draghi created backstop for bonds - and they stopped falling, and the investment risk lowered, so funds started buying bonds and Euro was purchased.
What is happening now in dollar is practically a reverse process. FED WANTS just WANTS to increase rates. So there will be less money to buy bonds, there will NOT be any backstop in junk market, so the risk increases, therefore EVERYONE is SELLING, that includes the dollar.
SO - THE RATE INCREASE IS DOLLAR NEGATIVE.
Now what happens when dollar falls down?
GOLD GOES UP.
So the FED decision to increase rates is GOLD POSITIVE.
Now some people say FED wants interest rates to rise because of the GOLD, because they want gold down. Silly. It's the opposite.
Well, as above - it means complete lack of comprehension of how the markets work.
FED is just about to unleash the strongest GOLD buying frenzy world has EVER seen.
I'm ALWAYS in a gold-buying frenzy...it's just the paucity of FRNS to trade for it that keeps me "sane" :)