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Monday, September 25, 2023

APROXIMÁNDONOS AL HORIZONTE DE SUCESOS DEL RENDIMIENTO DE LOS BONOS (TOM LUONGO, 23-09-2023)

The signs are piling up everywhere that Project Ukraine is ending and all that’s really left now is to squeeze the final drops of blood from the US taxpayer stone

(...) Only a select group of commentators and myself believed Powell could make it into and possibly through 2024 with rates north of 5%. 

(...) 

The inverted US Yield Curve is the thing that is sticking out right now, but it’s normalizing, albeit slowly. It’s being fought every basis point of the way by Janet Yellen at Treasury, Christine Lagarde at the ECB, Bailey at the BoE and Joachim Nagel at the Bundesbank. 

Because Powell has been alone the Bond Vigilantes hadn’t been fully convinced of Powell’s fortitude. I believe they are now. The movement in yields in the six-month to two-year band confirm this. 

In effect he kept telling the “2 and 20 carried interest” guys in private equity that there are no cheap dollars for them. You want them? Go find projects worth the 6% vig. Otherwise, the money is going back to Main St. through reinvestment in savings at higher rates to raise their purchasing power. 

 All of this begs the question, with what money is Yellen going to intervene in the bond market? Well, of course, with the money she’s raising this fall to cover the massive budget shortfall, but only if there’s some concessions to Gaetz on spending. She will buy back underwater US Treasuries at 40-50% haircuts to issue new bonds at higher yields than the ones she’s buying. 

But what is Yellen actually doing? Well, it’s called Yield Curve Control, folks.

 

The first trading day of October, Q4, has all the earmarks of a disaster for Europe. 

Right now everything looks calm, the tides are flowing out. But just below the surface something is boiling ready to explode. That explosion is coming in the sovereign bond markets. 

There is no avoiding this, only postponing it. 

Today the ECB is holding on for deal life. It is the vanguard of a system on the edge of collapse… And with it the fate of multiple centuries-spanning empires. 

I also know it feels pointless to talk about these things because nothing ever seems to change. But           they are, slowly. This is an inertia problem more than it is an intention problem.

[Powell] did the hard work this summer.  By raising interest rates in July, he left himself optionality in September.  He was clear that he expects one more hike this year and is still open to another one in Q1 2024. 

Slowing rate hikes here gives banks a little more time to repair their balance sheets and force them to jettison underwater commercial real estate loans.  Powell continues to throw private equity under the bus.

He is also forcing Congress to face the music on their egregious spending.  The dirtiest secret in Washington is that we could cut the budget between 25% and 40%, reducing the waste, fraud and, frankly, welfare for useless bureaucrats and no one would see a drop in functionality of efficiency. 

Everyone knows it.  Powell can’t say any of this but that’s exactly what he’s targeting.

We’re staring at the black hole and are about to cross the event horizon into a period of, at best, stagflation and, at worst, outright deflation. No matter what happens, it won’t be hyperinflation. The USDX is very clear on this folks.

You know who wins when prices fall? You do. You know who loses? The ones who stole your futures with free money.

Yes, the Fed created this problem during COVID, on this point I wholly agree with both Hunt and Booth (see linked interview above). But at the same time if Powell’s thinking is let’s take everyone to the edge of the abyss and see who jumps, then that wouldn’t be so bad either.

 

Nos estamos aproximando al agujero negro y a atravesar el horizonte de sucesos en un período de, en el mejor escenario, estanflación y en el peor de pura deflación.Suceda lo que suceda no será una hiperinflación.El USDX es muy claro en ello, amigos.

¿Sabemos quién gana cuando los precios caen?. ¿Sabemos quién pierde? Aquellos que roban vuestros futuros con barra libre de dinero 

Sí, la Fed creó un problema durante el COVID, en eso estoy de acuerdo con Hunt y Booth. Pero al mismo tiempo si el pensamiento de Powell es llevar a todos al borde del abismo y ver quién salta, ello tampoco sería tan malo


https://tomluongo.me/2023/09/23/approaching-the-bond-yield-event-horizon/

 

 

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