Two weeks ago, before Yellen for the first time cautioned about the strength of the dollar and its impact on US "exports" (ironically, "strong" entirely as a result of the Fed's insistence that a rate hike is coming, ignoring the stall-speed Q1 GDP that may be as low as 0.2% [8]), Goldman asked its clients [9]what they thought was the biggest concern on their minds. The answer: the strong dollar.
They were right, and yet with the Fed boxed in a corner where it now has to hike rates or lose what little credibility it has left, the USD is likely to keep rising even more until the Fed has no choice but to admit defeat in its latest annual attempt to declare the start of renormalization, and perhaps to even go NIRP or do a QE4 trial balloon.
Of course, if and when the Fed pivots, it will box itself even more, this time as asset values soar beyond the merely "ridiculous" levels currently, and even further into uncharted bubble territory.
Which brings us to today's poll, courtesy of Bank of America which asked its bond clients what they are most concerned about. The answer, by a wide margin, "Bubbles in credit."
From Bank of America:
We asked high-grade investors what their biggest concern was for credit going forward (chart 1):
- “Bubbles in credit” has jumped as the biggest concern (30%), having been third on the list in January’s survey,
- Likewise “supply” has risen to be the second biggest concern (19%),
- “Geopolitical conflict” is the third biggest concern (14%), but this is down from being the top concern in January’s survey,
- Note deflation in Europe (the second biggest concern two months ago), is now down in 7th place (just 3%).
[10]
Not sure why of the master categories listed above "liquidity" is in, but if isn't, it will be soon [11]. And if it is "supply" at just 19%, expect this number to soar in the coming months as a true market test reveals there is absolutely no depth behind razor thin bid/ask "markets."
Which is why the Fed is truly in a lose-lose situation, because on one hand the soaring USD will cripple what's left of the US economic recovery story, and on the other everyone is now admitting 7 years of unprecedented liquidity injections have led to the world's biggest, and truly global, asset bubble.
Damned if you do, Janet, and damned if you don't. Is it clear now why Ben Bernanke couldn't wait to get the hell out of dodge and leave the mess he left in the hands of someone else?
