Excellent piece to read thank you about an area of financial markets where the dark arts are marginally more nefarious than the front rows of an All Blacks v Springboks scrum
As well as monetary policy across the Western economies, I’ve also been watching the volatility in Gold, Silver and crude oil (especially the Brent future contract which is cash settled unlike WTI) and to echo your point about the purpose of rate hikes, much is entirely counterintuitive
The inflation we have now was almost certainly a direct consequence of government policies locking down economies and, as Mervyn King pointed out, the concomitant issuance of furlough creating too much money chasing too few goods This has been compounded as ’til death us do part’ commitments to net zero coupled with inflation busting public sector pay rises more or less echoes the point Kalecki made in 1943 https://www.exploring-economics.org/en/discover/political-aspects-of-full-employment/
So central banks using the monetary sledgehammer to crack the supply side inflationary nut looks to be a deliberate misdiagnosis?
A recent podcast between Tom Luongo and Vinci Lanci
makes the point that we cannot ignore unprecedented levels of Western government debt vs the poor growth rates which markets have yet to make a serious consideration of the prospects of sovereign default risk which may explain why the Bank of England have been manipulating an inverse yield curve, and the ECB manipulating credit spreads as evidenced by the massive UST buying since 2021 when Powell started to raise rates (which has reduced the size of the offshore dollar market, as China started to sell
So was Truss ousted in a BoE led coup because what she proposed exposed the above also when Janet Yellen is at odds with Powell who refuses to lower rates resulting in a stealth QE via short dates debt issuance ?
Which brings the discussion to commodities notably Gold which has rises sharply in the last two years despite ‘higher for longer’ yields and strong equity markets The purchasing of Gold by China and Russia has certainly shifted the deliverable Gold market east and Comex has reacted accordingly
Also noticeable is the massive manipulation of crude prices via the Brent contract (last week of May/first week of June) as put options around the $80 and $79 strikes were taken out and move the spot price down 5% in three days
Who needs the price of crude oil weaker ?
Who needs dollars to prop up its weak financial system ?
All the counter intuitive volatility across asset classes points to significant stress somewhere in the Western system which they are expending vast capital (actual and political) to stop
It points to the Eurozone which makes the November election crucial for each faction involved
Pal makes the point that economic growth is population growth + productivity + change in debt. Population is declining in the West, at least before immigration.
He talks of productivity as output per unit of energy. Cheap renewables are the future and the selling point is not the de-growth Marxist agenda, but pro-growth capitalism.
Debt is issued mainly to fund interest on debt and hence contributes less and less to growth, but keeps rising.
The Arthur Hayes article is interesting. He believes that short term debt issuance is to manipulate banks into lending through regulatory arbitrage. At least in the US. This explains the inverted yield curve which I assume is not flashing the normal recession signal as a consequence of intervention.
As an addendum, the Eurozone dysfunction is compounded by a fragmented sovereign debt market and I suspect in the Brussels utopia, the Commission would love to roll it all into a low coupon perpetual
Until then, the paradox remains of German 10yrs trading at 180bps below US 10 yrs despite a slumping industrial base caused primarily by the loss of its cheap gas supply
85% of German businesses remains private and outside of capital markets scrutiny, so the best indicator of just how bad things are becoming are via reported bankruptcies?
Excellent piece to read thank you about an area of financial markets where the dark arts are marginally more nefarious than the front rows of an All Blacks v Springboks scrum
As well as monetary policy across the Western economies, I’ve also been watching the volatility in Gold, Silver and crude oil (especially the Brent future contract which is cash settled unlike WTI) and to echo your point about the purpose of rate hikes, much is entirely counterintuitive
The inflation we have now was almost certainly a direct consequence of government policies locking down economies and, as Mervyn King pointed out, the concomitant issuance of furlough creating too much money chasing too few goods This has been compounded as ’til death us do part’ commitments to net zero coupled with inflation busting public sector pay rises more or less echoes the point Kalecki made in 1943 https://www.exploring-economics.org/en/discover/political-aspects-of-full-employment/
So central banks using the monetary sledgehammer to crack the supply side inflationary nut looks to be a deliberate misdiagnosis?
A recent podcast between Tom Luongo and Vinci Lanci
(https://tomluongo.me/2024/08/02/podcast-episode-186-vince-lanci-and-how-davos-manipulates-time/)
makes the point that we cannot ignore unprecedented levels of Western government debt vs the poor growth rates which markets have yet to make a serious consideration of the prospects of sovereign default risk which may explain why the Bank of England have been manipulating an inverse yield curve, and the ECB manipulating credit spreads as evidenced by the massive UST buying since 2021 when Powell started to raise rates (which has reduced the size of the offshore dollar market, as China started to sell
So was Truss ousted in a BoE led coup because what she proposed exposed the above also when Janet Yellen is at odds with Powell who refuses to lower rates resulting in a stealth QE via short dates debt issuance ?
Which brings the discussion to commodities notably Gold which has rises sharply in the last two years despite ‘higher for longer’ yields and strong equity markets The purchasing of Gold by China and Russia has certainly shifted the deliverable Gold market east and Comex has reacted accordingly
Also noticeable is the massive manipulation of crude prices via the Brent contract (last week of May/first week of June) as put options around the $80 and $79 strikes were taken out and move the spot price down 5% in three days
Who needs the price of crude oil weaker ?
Who needs dollars to prop up its weak financial system ?
All the counter intuitive volatility across asset classes points to significant stress somewhere in the Western system which they are expending vast capital (actual and political) to stop
It points to the Eurozone which makes the November election crucial for each faction involved
Thanks for these detailed thoughts John and the additional links.
I'll add one more from Raoul Pal: https://www.youtube.com/watch?v=-Xi8Krhy8FQ
Pal makes the point that economic growth is population growth + productivity + change in debt. Population is declining in the West, at least before immigration.
He talks of productivity as output per unit of energy. Cheap renewables are the future and the selling point is not the de-growth Marxist agenda, but pro-growth capitalism.
Debt is issued mainly to fund interest on debt and hence contributes less and less to growth, but keeps rising.
The Arthur Hayes article is interesting. He believes that short term debt issuance is to manipulate banks into lending through regulatory arbitrage. At least in the US. This explains the inverted yield curve which I assume is not flashing the normal recession signal as a consequence of intervention.
As an addendum, the Eurozone dysfunction is compounded by a fragmented sovereign debt market and I suspect in the Brussels utopia, the Commission would love to roll it all into a low coupon perpetual
Until then, the paradox remains of German 10yrs trading at 180bps below US 10 yrs despite a slumping industrial base caused primarily by the loss of its cheap gas supply
85% of German businesses remains private and outside of capital markets scrutiny, so the best indicator of just how bad things are becoming are via reported bankruptcies?
https://amp.dw.com/en/germany-sees-company-bankruptcies-soar/a-69358663
https://www.statista.com/statistics/246420/major-foreign-holders-of-us-treasury-debt/
Meant to add this for the point about UST foreign holders