Rising Interest Rates Starting To Bite

Submitted by Gary Evans of Global Macro Monitor

We have long held that interest rates have been so low (especially real rates) that it will take some time to reach a level for them to really matter and impact markets. The 2-year yield crossing over the S&P500 dividend yield this past week for the first time in the last ten years is unlikely to slow the momentum driving risk markets. Nevertheless, they are getting closer to the zip code — after two years since the tightening cycle began — where they will begin to impact fundamental valuations (what is the fundamental value of Bitcoin?) and the relative pricing of risk assets. Keep it on your radar.

Long-term rates are so utterly distorted by the central banks we are not sure if the markets even pay attention anymore. Pancaking of the yield curve? Not the signal it used to be.  Meh!

The above, of course, is somewhat offset by the massive stock of central bank money in the global financial system which has driven up asset values to a level that has finally kicked the real economy into third gear.  This has created the perception of a Goldilocks global enviornment and positive feedback loop between markets and the economy.  Now add fiscal stimulus.

The unprecedented reservoir of the mix of this type of money is still so full it will take some time to drawdown central bank balance sheets to parch the risk markets. A higher share of central bank money relative to credit based bank money reduces global systemic risk and thus asset price risk premia.  Thus, additional market distortions.

The party continues.  Momentum is a powerful thang! Until it isn’t.

Comments

MusicIsYou Mon, 12/18/2017 - 07:17 Permalink

Oh haha watch out for those rising interest rates by golly haha. Of course the interest rates don't matter to anybody in the club - they'll just get bailouts when they make mistakes. The interest rates don't matter to the club, and the interest rates don't matter to people who live in reality.

new game MusicIsYou Mon, 12/18/2017 - 07:48 Permalink

qe is the pyramid, the ponzi with infinete input of dollas as end result. inflation, yes, go shopping.hits the poor hard(rents). no problem, moar  free shit financed (for votes), from above pyramid scheme.when stawks correct, the dividend will revert to the norm. wealthy fuks must get their return.the insiders will have sold their options and revert to life sustaining dividends that provide for the basics, such as fueling jets, maintaining ships of luxury, paying maids and gardeners, and of course parties to show off their fine art...but wtf, they already bought all this.thanks to the priveledge of being inside the crony circle of "da fed".

In reply to by MusicIsYou

peterk Mon, 12/18/2017 - 07:39 Permalink

QE is going to END for one simple reason.The BANKS cant make $$$ money with 1% interest rates.You saw this first i japan where the banks forced kuroda to let te long yeild end rise.Then  in germany same tghing.And same in US.... banks complaining.Now kuroda was  forced to say there is a "MAGIC interest rate level" below whioch its unhealthy to go below......... yep that level is when banks show RED on there their  balance sheets.So the BANKS will ENSURE QE ends...... in order to save their business.simple.BUT......... here in Australia the RBA is smarter than everyone else and still refuses to  raise rates, until imo the BANKS tell  the RBA for  piss off and raise.. and they will rasie anyway.Its just that Aussies are the most stupid  kid on the block....... they dont know diddly squat. 

LawsofPhysics peterk Mon, 12/18/2017 - 09:11 Permalink

Bullshit.  You are thinking of a traditional or fundamental banking model.  Let me be clear, traditional/fundamental banking is DEAD. Money has and continues to be created by the fuckers in banking and finance with no real work, no real risk and no new collateral requirements!!!Yes, it woud be great to return to tradiational banking built upon real savings, real collateral and real work!!!!!"Full Faith and credit"

In reply to by peterk

MusicIsYou Mon, 12/18/2017 - 07:48 Permalink

The interest rates don't matter and in fact taxes don't matter either because the Fed just prints as fcking much money as elites can fit in their bank accounts. And then they send the IRS to point guns at people not in the club to make it appear to the common folks that taxes and interest rates matter. But the Fed already showed back in 2008 and ever since that if you're in the club you can not go out of business. And they send the IRS to give you the beatdown (like the hired thugs they are) because if the population realized that taxes don't really matter, then you'd start realizing that elites just stick their hands into a never ending pile of money to take as much as they want. That's why elites in the club don't go to jail for not paying taxes in that their little secret is that taxes don't matter.

Weirdly Mon, 12/18/2017 - 07:49 Permalink

They print money out of nothing to make your saved labor worthless over time and entise you to spend all you have and go into debt.  Then they stop printing money and make it more difficult to earn.  You default.  They foreclose.  They buy all the things for pennies.  And you no-coiners still can't see the value of bitcoin.

Let it Go Mon, 12/18/2017 - 08:05 Permalink

We are in uncharted waters and should take nothing for nothing for granted. To assume we will move forward without a glitch is  extremely optimistic. With the passage of time, things change and evolve. This transformation can be seen in both society and the economy. A question we must ask is just how relevant today's comparisons are with prior economic cycles?The situation today is in many ways "historically unique" due to the rampant expansion of credit in recent decades. Recently  I found myself pondering the line, "outwit and outlast" that is often used during the popular hit television show Survivor. It occurred to me the winners in both life and investing often reflect these qualities and that this game is far from over. More on this train of thought in the article below. http://Economic Evolution Renders Many Comparisons Obsolete.html

buzzsaw99 Mon, 12/18/2017 - 08:07 Permalink

He left me here stranded like a dog out in the yard Charged up a fortune, on his qe card He hiked the overnight to 5.25%, then slashed me back to mother zirp Man that was sure unkind Bernank spot Baby He sure had a real good time...

To Infinity An… Mon, 12/18/2017 - 09:57 Permalink

"it will take some time to reach a level for them to really matter and impact markets"Really, They haven't impacted the markets already?The fucking ignorance that passes for "experts" in the new economy.

earleflorida Mon, 12/18/2017 - 10:57 Permalink

My concern is 'Short-Term Paper' and tightening (slow strangulation in the money-stream) as the private Internationalist Bankers take their balances offshore?What then...[?]

everything1 Mon, 12/18/2017 - 11:52 Permalink

Near the end of next POTUS or shortly after the economy may crasherola, they'll make sure the interest rate is up enough to allow some slide back to where rates are about zero or negative and the dollars are near free again..Write off lots of debts all around, deploy gold parachutes, sell the shell, etc.Rinse/Repeat, same drill, just some different faces is all.