The Name is Bond - Part II
Speculative positions in equities, commodities and even real estate will be left to fend for themselves as the focus will be supporting US bonds and the dollar at all costs.
My sense is that the multiplier effect is already working in reverse. This means that when speculative positions unwind, there will not be enough liquidity to save any particular asset class.
The BOJ has been withdrawing yen from the Japanese money supply by selling their government bonds at a rate faster than they can inject new yen into the banking system.
Witness the BOJ mopping up 13 Trillion Yen while injecting $26 Billion in late May to keep their rates artifically low.
Witness the recent repo trade squeeze and subsequent unwind by the hedge funds. Hedgsters borrow from the repurchase market to finance their leveraged transactions.
The repo market trades collateralized short term loans at rates that closely track Fed Funds.
The recent yield curve inversions December through March caused severe distress for repo players who borrowed dollars short term to invest in longer term instruments. The repercussions have been felt in the markets since late April.
The current inversion, which began June 2nd, should it persist will be even more painful as CDO and all derivative positions will become severely stressed.
Bottom line: all asset classes will be affected to varying degrees, while stagflation and debasement eat away cash positions.
In the end, the central banks and select multinationals win, while John Q. takes it in the shorts. More on the "merchantilist" energy play and economic terrorism in Part III
My sense is that the multiplier effect is already working in reverse. This means that when speculative positions unwind, there will not be enough liquidity to save any particular asset class.
The BOJ has been withdrawing yen from the Japanese money supply by selling their government bonds at a rate faster than they can inject new yen into the banking system.
Witness the BOJ mopping up 13 Trillion Yen while injecting $26 Billion in late May to keep their rates artifically low.
Witness the recent repo trade squeeze and subsequent unwind by the hedge funds. Hedgsters borrow from the repurchase market to finance their leveraged transactions.
The repo market trades collateralized short term loans at rates that closely track Fed Funds.
The recent yield curve inversions December through March caused severe distress for repo players who borrowed dollars short term to invest in longer term instruments. The repercussions have been felt in the markets since late April.
The current inversion, which began June 2nd, should it persist will be even more painful as CDO and all derivative positions will become severely stressed.
Bottom line: all asset classes will be affected to varying degrees, while stagflation and debasement eat away cash positions.
In the end, the central banks and select multinationals win, while John Q. takes it in the shorts. More on the "merchantilist" energy play and economic terrorism in Part III
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