Bond Yields = Trouble = Forced Liquidity Raise
Yields aren't higher because of inflation, yields are rising because global players need to raise cash!
The extreme market moves lately solidify our thesis that the global financial markets no longer exhibit structurally sound long term investment opportunities. The evidence of such is clearly embedded within the massive size of the moves in equity markets on nothing more than an “X” post. It is clear to us that the massive size of the debt based fiat system has far outstripped its natural organic utility as the money supply has for all intents and purposes, put the top 5% well outside the bounds of any economic cyclicality and has shackled the top 20% into thinking that just by participating in the game it will keep the engine oiled for future gains to come. We highly doubt the risk is worth it at this point.
Take a look at the US Govt 2Y who just today, auctioned off a fresh supply of $76Bn worth and saw a massive 2bp tail as buyers balked despite the +50bp differential from last months coupon!
We are targeting 4.02% to put a stop to this cash crunch selling, where we suspect yields will stabilize and bond market players come to their senses and realize the real future path of rates must be lower to accommodate the global economic slowdown and increased geopolitical volatility. The 30Yr U.S. govt chart is also reaching some key levels as it once again approaches 5%:
Well what if the monetarists have already printed decades worth of future GDP and dragged it forward so fast that there isn’t any future GDP to steal from any longer? This is the situation the global economies find themselves in and we no longer believe the structural foundation of global financial markets risk and volatility are clearly or fairly priced. This poses a very unique set of problems for everyone as future liabilities can no longer be properly matched with a structurally sound long term investment.
Case and point are the fact that U.S. Treasuries are no longer or at least from what we can tell, exhibit “flight to quality” panic buying.
Currently yields are moving higher and doing so, not because of an alleged energy inflationary environment, but we believe there is a MASSIVE CASH COLLATERAL CALL, that is ongoing globally in the shadow banking and credit markets.
We knew it was just a matter of time, as we have seen massive discounts on global Real Estate markets that rival the GFC and in some instances even outpace the losses of that era. We couldn’t figure out how nobody seemed to be taking the balance sheet hit, well we now know the pervasive mark to market fudgery that has occurred across multiple venues by players that were allegedly sophisticated, such as Blackrock who can value an asset one day at par then zero the next day.
Here is an excellent article about the ongoing private credit problems from European Business Magazine on Private Credit
This says what we have always assumed about the shadow bank and credit markets, that without ZIRP (Zero interest rate programs) all the financial alchemy will come crashing down.
In fact we can attest to the majority of asset gains over the last 3 decades have been facilitated by the 9.7% annualized growth rate of the Federal Reserves asset base balance sheet. Without this increase the SP500 would have probably rivaled T-Bills. Without the central bank monetary expansion, ASSET PRICES collapse. Yes the boomer generation has been the largest recipient of this largesse, but that game is OVER!
So this is why we do what we do, so you can navigate things accordingly. Do not look to any rational explanations for daily 2% equity moves, as the forward indicators are now saying that volatility is here to stay, can your portfolios handle this vol? Is the future return profile conducive to taking on such volatility risk? Where does one hide, is the buy and hold and hope and pray still a viable strategy? We don’t think so and we think the next decade will look nothing like the last one. To say things only get more challenging here on out is an understatement.
We are talking about long, structural cyclical changes that come with all sorts of probabilities and given our starting point, well as we have said time and time again, investing is more a matter of when one starts rather than how long stays invested, that determines ones overall success.
We believe the future is a more digital decentralized one and its why we are positioning ourselves in that sphere. We still follow legacy traditional markets, but we suspect the transition in the future will come gradually and we believe financial markets will become much more stable and transparent and we want to be in the best position possible to take advantage of this new future.
So stay with us and we hope you continue to learn alongside us.
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