'The global yield collapse is not so much in response to economic weakness and trade war risks. The global financial system is an accident in the making. China is an accident in the making.''Financial and economic Systems have evolved to become acutely unstable. Market-based Credit so dominates system Credit expansion that “risk on”/“risk off” speculative dynamics now exert an acutely destabilizing impact on financial conditions, Credit expansion, securities prices, Household Net Worth and economic performance. In this highly speculative market environment, “risk on” ensures loose financial conditions, Credit and speculative excess, and vigorous market inflation, while exacerbating economic maladjustment.
When “risk on” invariably succumbs to “risk off,” financial conditions abruptly tighten, debt issuance tanks, system Credit growth drops sharply, markets turn illiquid, Bubbles falter, equities prices sink, Household Net Worth deflates, and the Bubble Economy commences a downward spiral. Worse yet, these dynamics are a global phenomenon.
Is the Fed really about to further feed “risk on”, stoking Bubble excess in the process? I’ll assume the Powell Fed would rather sit this one out. They are, of course, ready to respond in the event of “risk off.” But at this speculative blow-off Bubble phase, things tend to unwind really quickly. Global bonds appreciate the acute fragility and are priced for rate cuts and aggressive QE deployment.
The global yield collapse is not so much in response to economic weakness and trade war risks. The global financial system is an accident in the making. China is an accident in the making. Markets are demanding: “Give us rate cuts and prepare for aggressive QE - or we’ll give you central bankers the type of vicious market dislocation you are not prepared to contend with!” The Fed is faced with the Hobson Choice of either stoking the Bubble or waiting for incipient “risk off” - and hoping it possesses the firepower to hold things together. Markets bet confidently the Fed lacks the fortitude to wait.'
- Doug Noland,
Q1 2019 Z.1 "Flow of Funds", June 15, 2019
Context'History has never experienced such powerful financial Bubbles on a globalized basis.'