Is a so-called “safe haven” losing almost 4% in a single week really a safe haven? Rising yields were a global phenomenon this week.
There is today no doubt in the marketplace that the Fed, in the event of market instability, would quickly replay March’s crisis operations. Markets see nothing inhibiting Fed intervention measures. The sanguine view holds even for the Federal Reserve’s extraordinary international crisis operations.
If we could chart “inequality,” it would at this point be rising parabolically – following the trajectory of the Fed’s balance sheet. I had been assuming Fed holdings would at some point be getting a lot larger. It seemed clear inequality would only get worse. COVID dramatically accelerated both trends.
This Bubble has turned unstable. Chinese stocks reversed sharply lower after the U.S.’s shocking closure of China’s Houston consulate. Fundamentals and geopolitics do matter.
With highly speculative securities markets having fully recovered COVID losses – and Nasdaq sporting a 17% y-t-d return – why the talk of more QE? And with 10-year yields at 0.63% and financial conditions extraordinarily loose, what’s the purpose for discussing the pegging of Treasury bond prices (aka “yield curve control”)? Aren’t the markets already conspicuously over-liquefied?
The global nature of Bubble Dynamics makes this period unique. And while Europe, Japan and EM are important contributors, the global Bubble is foremost underpinned by historic U.S. and Chinese monetary inflation. That these two countries are increasingly bitter rivals adds unique challenges to Bubble analysis.
The second quarter was momentous for reasons beyond huge securities markets gains. Speculators and investors do “now believe central banks will exercise complete control over asset prices for the foreseeable future.” There is no longer any shred of doubt: Highly synchronized global market Bubbles are the ultimate “Too Big to Fail.”
The rapid recovery phase will prove dreadfully short-lived. Here’s why the next decline could be even worse than the initial COVID crash.
“The Fed is trapped.” It’s trapped by Bubble Dynamics – a historic Bubble that either inflates or collapses. What the Fed labels as “markets functioning” is at this point a “functioning” speculative Bubble. And feeding this dynamic exacerbates inequality, social instability and financial and economic fragility.
Federal Liabilities surpassed 100% of GDP for the first time in at least six decades. The quarterly Z1 data gets worse from there. Here’s where we’re headed and what it means.