Central Banks Are Going to Have to "Pull the Plug" on Stocks

It’s no secret that Central Banks have been funneling liquidity both directly and indirectly into stocks. However, what most investors don’t realize is that this liquidity pump is about to end.

Why?

Because the endless streams of liquidity (Central Banks continue to run QE programs of $100+ billion per month despite the global economy stabilizing) have unleashed inflation.

Forget the “official” date. That stuff is all propaganda. Take a look at what is happening in the bond markets which trade based on inflation in the real world.

When inflation rises, bond yields rise. And right now, sovereign bond yields are rising around the world.

The yield on the US 10-Year Treasury has broken its 20-year downtrend.

Treasury Yields Rising

The US is not alone… the yield on 10-Year German Bunds has also broken its downtrend.

German Bund Yields Rising

Even Japan’s sovereign bonds are coming into the “inflationary” crosshairs with yields on the 10-Year Japanese Government Bond just beginning to break about their long-term downtrend.

Japanese Government Bond Yields Rising

Because if bond rates continue to rise, many countries will quickly find themselves insolvent.

Globally the world has added over $60 trillion in debt since 2007… and all of this was based on interested rates that were close to or even below ZERO.

Central Bank cannot and will not risk blowing up this debt bomb. So they are going to be forced to “pull the plug” on liquidity and “let stocks go.”

Put simply, if the choice is:

1)   Let stocks drop and deal with complaints from Wall Street…

Or…

2)   Let the bond bubble blow up, destabilizing the entire financial system and rendering most governments insolvent…

Central Banks are going to opt for #1 Every. Single. Time.

On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s in terms of Fed Policy when The Everything Bubble bursts.

It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:

https://phoenixcapitalmarketing.com/TEB.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Comments

heretical Buck Johnson Thu, 01/18/2018 - 16:39 Permalink

This is a very enlightening article. Governments have borrowed trillions by issuing treasuries and have to pay the interest on those loans. Britain currently pays close to one billion pounds per week in interest on its national debt. If it does come down to a choice between defaulting on these payments (sorry folks, we're bankrupt!) and allowing the market to crash, the market will certainly crash.

 

In reply to by Buck Johnson

Consuelo Thu, 01/18/2018 - 12:48 Permalink

 

 

Sure Graham...   

Let's get back when the S&P crashes through 2000 and the trap door on home $equity springs open and see how your sure-thing prognostication is working out, mmmkay...?

vofreason Thu, 01/18/2018 - 13:14 Permalink

I love how they draw their trendlines through tops and don't even start at the high point.  I get it guys but if you're gonna make a case for things you at least gotta get the basics right.  I'm not technical guy that puts all my faith in em either but if you're gonna place so much emphasis on it you should at least have that part correct and not just adjusting it to your thesis.  

tovar2 Thu, 01/18/2018 - 18:58 Permalink

You think to highly of the central banks.   Clearly they will pick option 1.  They all have their stashes in safe places when the fireworks start.  They don't give a squirt about the fires they start. 

JailBanksters Thu, 01/18/2018 - 22:59 Permalink

The Bank has spent 10 years pumping this up, they're not going to give up now. Never give up, never surrender. It is nothing short of a Wealth Transfer System, for Jews and their Minions.

ZeroLounger Thu, 01/18/2018 - 23:27 Permalink

A positive yield on the Japanese 10-year.  Riiiiiiggghht.   Oh wait...

 

Edit:  The red lines appear somewhat 'arbitrarily' placed, but we get the picture.

mailll Fri, 01/19/2018 - 01:29 Permalink

Isn't that always part of the plan with central banks?  Drive everything up to the stratosphere with free printed money then pull the plug?  They do it over and over again.  Building up to 1929 - get your free money here, then pull the plug? Building up to 2008 - get your free money here, then pull the plug? And were they responsible for the dot.com bubble and crash?  Maybe. He who controls the money controls the world.  And they always have engineered excuses. Right now it's only conspiracy theory.  But if it is proven true over and over again, it becomes a conspiracy fact. But so far, it is only conspiracy theory. The truth lies behind the veil of total secrecy, and with the ones who are sworn to absolute secrecy.  And who are they?  Well, it's a secret.  So I don't know. And I shouldn't surmise.  Chances are, I would be wrong.  It would be nice if they spilled the beans, but they won't.  Truth is a wonderful thing, and we need the truth.

theprofromdover Fri, 01/19/2018 - 04:30 Permalink

Of course they should let the Stock Market go, the implied valuations on these corporations are insane, and none of them are building for the future, at the most they are buying out their competition, and at the least they are diverting the money to the executives.

However, as well as high net-worth's getting hit, your pension will collapse.

Unfortunately the real guilty men on Wall St will personally escape without pain.

gmak Fri, 01/19/2018 - 05:22 Permalink

All well and good, except TPTB (however you personally define them) want inflation to lower the general population standard of living and mitigate the debt bubble.  They need the overall financial bubble to spill over into other areas of the economy (you didn't think that raising min wage to $15 was a coincidence, did ya? It's to try to jump start inflation from the wage side).

 

As soon as you accept that the current debt levels everywhere in the world cannot possibly be paid off in current fiat, you realize that they have to get the velocity of money up so that the bubble of fiat doesn't burst. That velocity increase (starting with jacking up wages from the ground up) will lead to inflation and give all that printing somewhere to go. Wages will rise (but not in purchasing power = lower standard of living) and debt will be a smaller proportion of all that fiat, so more controllable.

 

As I've said many times, if you borrow and use that debt for anything but productive capacity then you are stealing from the future you. That future you will have to have a lower standard of living to pay off that debt. In other words, you used the debt to pull future consumption to today with the implicit understanding that you would have less "money" to live while the debt gets paid off (ie lower standard of living).  Wonder why we've had such great economic growth? Why the consumer has been at the front of mind of governments everywhere? Why everyone wants immigrants (as new consumers and as a potential "crisis" distraction once the SHTF)?  

 

Our economic growth and GDP has been largely an illusion. Once you adjust for the boomer bulge, you realize that everything else is debt-fuelled consumption which means either a voluntary lesser standard of living, or an imposed-crash (laws of mathematics, folks!) depression. THERE HAS TO BE A RESET.

buzzsaw99 Fri, 01/19/2018 - 05:57 Permalink

they will never, ever, "let stocks go".  if stocks go down it will only be to a level they pick.  if bonds go down it will be to a level of their choosing.  using charts as a predictor is stupid.  the reason your charts are moving basically in a straight line is because they made that happen.  expect tinkering, expect micromanaging, expect lying numbers used to justify their every move.