Bonds, Bonds, Bonds Away
Interest costs are only just beginning to rise for governments across the world, including the US Government.
Good Friday - Here we are again: Bonds, Bonds, Bonds away.
James Carville famously told Bill Clinton "Its the economy stupid." Today, it's the bond market, stupid. Wall Street is beginning to figure out (slowly) that the bond market is melting down, which spells disaster for the Global Financial System and beyond.
As James Grant, Jeffrey Gundlach, and Bill Gross have said, bonds move in long cycles (like everything else) and the 40 year low interest rate / high bond values we once knew are reverting to the mean, and likely to do so in ever more dramatic fashion as a convergence of crisis: global recession, escalating wars, and supply chain realignment rapidly erodes the confidence of sovereign debtors.
At the same time, the Fed is myopically focused on inflation, fluctuations in prices they cannot control, nor do they have the analytical framework (Monetarism / Keynesianism) to understand.
In several alarming speeches by Fed Governors like Governor Waller, the Fed has maintained that Quantitative Tightening (selling back Fed assets - mostly USTs and MBS) has minimal or "asymmetric effects" compared to Quantitative Easing (buying assets to prop them up). Such a delusional conclusion may be recorded as the biggest blunder in modern monetary history.
In short, yields (interest rates) are rising because of debt, a loss of confidence in the credit worthiness of sovereigns, the USA included. Adding fuel to the fire is DC's reckless spending, which amounts to adding a $1T to the national debt every 90 days.
Worse, DC is actively trying to confiscate (steal) and repurpose Russian assets held in European banks to fund Ukraine's war effort. Such a move will only accelerate a massive divestment from USD denominated assets, namely US Treasuries, as foreigners fear future confiscations.
Jim Bianco (see below) thinks the surge in yields is nearly over when in fact it is only beginning. We are in the early stages of a debt doom loop from which there is no escape except into a new currency and financial system (Bitcoin / Gold).
Consider this yet another warning as tensions rachet up courtesy of Netanyahu's expansion of the Israeli War backed by the USM, Neocon saber rattling against anyone and everyone, Russia retaliates against the confiscation of its assets, and China smirks at shrinking US appeals (Yellen / Blinken's) for diplomatic reconciliation read desperate asks for Treasury bond buying.
We are at the End-of-Cycle in bonds (and many things) so buckle up because an explosive move higher in yields is imminent, which will bring down stocks, banks, and eventually sovereigns.
Stay safe, stay liquid and stay engaged.
https://lnkd.in/dg_QCemu hashtag#bonds hashtag#debt hashtag#financialmarkets