I can’t hold myself back anymore. Time and time again I see headlines from Bloomberg News, a news source I usually hold in high regard, that is blatantly and obviously trying to manipulate markets in one direction or another. In the past, I just chuckled to myself for what seems to be a sad attempt to move markets for someone’s own benefit. Do they know their attempts are that obvious that can be spotted easily? Are they doing it for internal egotistical purposes, monetary purposes or just being a puppet having stories fed to them for outside money managers?
I have been an avid Bloomberg News supporter and daily visitor to their site for over a decade. I appreciate Bloomberg News as a trusted source for articles and news usually based on statistics and raw data, avoiding biased reporting. But lately I have seen too many headlines that are blatant attempts to try to move markets in one direction or another.
Today, the breaking point for me was an innocuous top headline on the front page that read “The U.S. Inflation Scare May Be Over”. But when you click on the story, the headline reads “The great U.S. Inflation scare of 2018 may be over – for now”. Why did this one simple headline get me to feel the need to write this cautionary warning for all reading and trading based on top news stories? Because this story is part of a decade old trade involving a few very large funds and firms that have been cornering the US Treasury trading market to manipulate interest rates globally in what will eventually lead to the next financial crisis.
Anyone reading this headline should be asking themselves – Who says it may be over? One person, a survey of people, which people. And is a CPI month over month 0.2% increase a scare? What will you report when the number is 0.3%. Inflation is now a panic? And why would it be over? Could it just be getting started? Are you so sure your crystal ball states its over? What will you be saying in two weeks, three weeks…. Will it be back on again and you’ll issue an apology for those that thought it really was a scare and believed it was over?
First of all, inflation has just begun its upswing and factors that will lead to continued inflationary pressures are abundant. After over a decade of the most excessively accommodative monetary policy the world has ever experienced, inflationary forces will be high for quite some time. Excess capacity especially in the labor market has been run down to extremely low levels. Commodities, especially energy have all increased substantially – 100% increase types of numbers. The dollar has been going lower and the US debt is increasing by billions each month. Interest rates have been going up which will in turn increase the costs for everyone who needs to finance cars, homes and expansions. No, there is an overabundance of significant sources of inflationary impetus.
These are all significant sources of inflationary pressures. However, global bond markets are priced with yields so low, they reflect depressionary economic conditions with deflation. And the Fed, after a decade of keeping rates pegged at zero and purchasing around 5 Trillion of bonds, has been slowly trying to deflate this dangerous debt bubble that they created. Yes, the Fed has been trying to deflate this debt bubble and instead of rates going higher, long term rates barely budged. Sure you can come up with lots of good sounding theories why. But when you look at the data, the biggest reason comes to daily trading in the bond markets. Currently there are a few firms that represent the majority of the volume trading in the Treasury market. Combined cash and futures trading is around a Trillion dollars of US Treasuries daily! This manipulative trading is trying to hold onto trades and not sustain losses. History shows that manipulating a market and market cornering strategies, like the Hunt brothers in silver, may work for a prolonged period of time but will end destructively.
The manipulative bond trade is no different. The attempt to hold yield levels in the bond market that are disconnected with reality and the economic data won’t last forever. One strategy pursued to limit yield increases assisting these high volume trades is to have misinformation in the media that is supportive. Headlines like this Bloomberg one is another blatant attempt to give pause to those looking to sell their bonds by focusing on headlines instead of the data.
So I have to ask, who OK’d this story to be the top news story when yields are approaching recent highs, inflation is just starting to move higher and the Fed is raising rates. Even worse, who authorized this story when bond yields are arguable 3% below (around a 50% price mark to market loss for longest bonds if yields normalize) where they would normally be in a fully employed economy with above average GDP growth. And finally, who is going to authorize the top news stories when the manipulated bond market suffers significant volatility and losses? Will they issue an apology with that story for steering the news instead of reporting on facts? Stand by, glued to your scrolling news headlines. Just be careful to separate fact from fiction.
by Michael Carino, Greenwich Endeavors, 3/13/18
Michael Carino is the CEO of Greenwich Endeavors and has been a fund manager and owner for more than 20 years. He has positions that benefit from a normalized bond market and higher yields.