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SocGen’s Albert Edwards is out with a new note today – one which he says he wasn’t going to write – but felt compelled to do so anyway due to the ongoing rout in the US bond market, which has prompted the following question that Edwards tries to answer: Is the Ice Age over?… of as he elaborates:

“As the bond rout continues, the biggest call investors have to make is whether the break of the multi-decade downtrend marks the end of the secular bull market. This is the big one. Get on the wrong side of a new multi-year bear market in government bonds and all investment portfolios will be shredded to ribbons, as bonds are the cornerstone of most equity valuation models.”

To Edwards this is a familiar question because as he explains, it is “exactly the same bold heading box I wrote in my Global Strategy Weekly of 13 June 2007.” As he recalls, “the rout in the bond market back then was even more savage than it has been in recent weeks, with the 10y yield rising from 4¾% in mid-May 2007 to the 5¼% peak on 12 June, just one day before I wrote the words above, pondering the possible end of the secular bull market for Government bonds.”

Furthermore, just like now, yields were also set to break out above the secular downtrend and respected bond investors such as Bill Gross were, just like now, calling for the end of the secular bull market. Referring to a chart from SocGen’s head of technical analysis, Edwards points out that the break in the 10y above 2.8% was not the key level that could mark the end of the secular bull market, but rather it was the 3.05% zone as shown in the chart below. Indicatively, earlier today the 10Y hit 3.09% after reaching as high as 3.11% yesterday.

…click on the above link to read the rest of the article…

Bill Gross: “Our Financial System Is A Truckload Of Nitroglycerin On A Bumpy Road”

March 9, 2017

Bill Gross: “Our Financial System Is A Truckload Of Nitroglycerin On A Bumpy Road”

Courtesy of Bill Gross’ latest monthly letter “Show Me The Money“, here are some perspectives on the only thing that has kept the global economy going since the financial crisis: debt, and lost of it.

in 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster. In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises. But the credit creation has limits and the cost of credit (interest rates) must be carefully monitored so that borrowers (think subprime) can pay back the monthly servicing costs. If rates are too high (and credit as a % of GDP too high as well), then potential Lehman black swans can occur. On the other hand, if rates are too low (and credit as a % of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.

U.S. Total Credit Market Debt as a Percent of GDP

Central banks attempt to walk this fine line – generating mild credit growth that matches nominal GDP growth – and keeping the cost of the credit at a yield that is not too high, nor too low, but just right. Janet Yellen is a modern day Goldilocks.

…click on the above link to read the rest of the article…

Lord Rothschild: “This Is The Greatest Experiment In Monetary Policy In The History Of The World”

August 16, 2016

Lord Rothschild: “This Is The Greatest Experiment In Monetary Policy In The History Of The World”

Two months ago, the bond manager of what was once the world’s biggest bond fund had a dire prediction about how “all of this” will end (spoiler: not well).

Janus Capital @JanusCapital

Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day

10:05 AM – 9 Jun 2016

Now, it is the turn of another financial icon, if from a vastly different legacy – and pedigree – that of Rothschild Investment Trust Chairman himself, Lord Jacob Rothschild, who appears to be the latest entrant to the bearish billionaire club.

We were surprised to find his summary of recent events downright gloomy, and certainly non-conforming with a stock “market”, manipulated by central banks as it may be, trading at all time highs. Here are the key excerpts:

The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale.

To date, at least in stock market terms, the policy has been successful with markets near their highs, while volatility on the whole has remained low. Nearly all classes of investment have been boosted by the rising monetary tide. Meanwhile, growth remains anaemic, with weak demand and deflation in many parts of the developed world.

…click on the above link to read the rest of the article…

Bill Gross’ May Investment Letter: The Scariest Thing I’ve Read In Years

May 16, 2016

Bill Gross’ May Investment Letter: The Scariest Thing I’ve Read In Years

A friend recently sent me Bill Gross’ May investment letter and I haven’t been able to stop thinking about for days. Now one cannot deny that Bill is a highly intelligent man which is clear when reading his letters. He thinks differently than most and that comes out between the lines. But this latest letter has me more on edge than I normally find myself and for two reasons. First is that I cannot decipher if Bill is actually championing what he is discussing or simply suggesting it is a stark reality that we must accept. Second is that it reveals that even the likes of Bill Gross does not understand free market capitalism.

The gist of the letter was discussing the fact that technology is accelerating the replacement of human capital with software and machines. It is a fact. Bill rightly suggests that if this continues on course (which he believes it will) we will find ourselves in a jobless society. He describes a future where jobs are no longer part of societal life. Bill includes an excerpt from Andy Stern’s Raising the Floor,

“a policymaker – a future President or Prime Minister – must recognize that existing government policies have “built a whole social infrastructure based on the concept of a job, and that concept does not work anymore.” In other words, if income goes to technological robots whatever the form, instead of human beings, our culture will change and if so policies must adapt to those changes.”

To this proposition Bill then proposes a solution,

“What should the policy response be? Retraining and education sound practical and are at the head of every politician’s promised ticket for the yellow brick road, but to be honest folks, I doubt that much of it will be worth the expense.

…click on the above link to read the rest of the article…

Why the Quantity of Money Theory is DEAD Wrong

May 5, 2016

Why the Quantity of Money Theory is DEAD Wrong

COMMENT: Bill Gross says you are wrong and helicopter money is coming and the Fed should print trillions to buy government bonds. Any comments?

REPLY:Gross is not making a forecast without self-interest. Gross’ “helicopter money” calls for the Federal Reserve and U.S. Treasury to engage in another round of quantitative easing (QE) by printing trillions of dollars to buy government bonds. This is his Hail Mary play intended to boost the economy. How will that stimulate the economy? He runs Janus’ bond fund. It will only bail him out of losses on bonds.

Printing money to create “stimulation” is a fallacy. It has never worked. The theory of the quantity of money increasing or decreasing is pure nonsense. This typical one-dimensional thought process is incapable of understanding complexity.

The missing element is the velocity of money. If people hoard money without spending, then increasing the quantity of money will fail to produce inflation. Creating inflation, such as what Japan saw one month before raising the sales tax, demands that people see the price of goods rising so they spend the money faster because they fear it will cost them more tomorrow. Why did Roosevelt confiscate gold and devalue the dollar? People were hoarding money. There was such a shortage of money, more than 200 cities began to issue their own money known today as Depression Scrip.

This idea of “helicopter money” is rather pathetic and fails to dive deep into how the economy functions. Irrespective of the quantity of money, the velocity of money is what always distinguishes deflation from inflation. You could increase the money supply and nothing would happen. Alternatively, you could leave the money supply unchanged and people would suddenly lose confidence in government, causing the velocity to increase thereby producing inflation.

…click on the above link to read the rest of the article…

The Fed’s Stunning Admission Of What Happens Next

January 17, 2016

The Fed’s Stunning Admission Of What Happens Next

Following an epic global stock rout, one which has wiped out trillions in market capitalization, it has rapidly become a consensus view (even by staunch Fed supporters such as the Nikkei Times) that the Fed committed a gross policy mistake by hiking rates on December 16, so much so that this week none other than former Fed president Kocherlakota openly mocked the Fed’s credibility when he pointed out the near record plunge in forward breakevens suggesting the market has called the Fed’s bluff on rising inflation.

All of this happened before JPM cut its Q4 GDP estimate from 1.0% to 0.1% in the quarter in which Yellen hiked.

To be sure, the dramatic reaction and outcome following the Fed’s “error” rate hike was predicted on this website on many occasions, most recently two weeks prior to the rate hike in “This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession” when we demonstrated what would happen once the Fed unleashed the “Ghost of 1937.”

As we pointed out in early December, conveniently we have a great historical primer of what happened the last time the Fed hiked at a time when it misread the US economy, which was also at or below stall speed, and the Fed incorrectly assumed it was growing.

We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.

Here is what happened then, as we described previously in June.

[No episode is more comparable to what is about to happen] than what happened in the US in 1937, smack in the middle of the Great Depression.

…click on the above link to read the rest of the article…

It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington

August 27, 2015

It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington

On Tuesday evening, we asked what would happen if emerging markets joined China in dumping US Treasurys. For months we’ve documented the PBoC’s liquidation of its vast stack of US paper. Back in July for instance, we noted that China had dumped a record $143 billion in US Treasurys in three months via Belgium,leaving Goldman speechless for once.

We followed all of this up this week by noting that thanks to the new FX regime (which, in theory anyway, should have required less intervention), China has likely sold somewhere on the order of $100 billion in US Treasurys in the past two weeks alone in open FX ops to steady the yuan. Put simply, as part of China’s devaluation and subsequent attempts to contain said devaluation, China has been purging an epic amount of Treasurys.

But even as the cat was out of the bag for Zero Hedge readers and even as, to mix colorful escape metaphors, the genie has been out of the bottle since mid-August for China which, thanks to a steadfast refusal to just float the yuan and be done with it, will have to continue selling USTs by the hundreds of billions, the world at large was slow to wake up to what China’s FX interventions actually implied until Wednesday when two things happened: i) Bloomberg, citing fixed income desks in New York, noted “substantial selling pressure” in long-term USTs emanating from somebody in the “Far East”, and ii) Bill Gross asked, in a tweet, if China was selling Treasurys.

Sure enough, on Thursday we got confirmation of what we’ve been detailing exhaustively for months. Here’s Bloomberg:

China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

…click on the above link to read the rest of the article…

FED LUNACY IS TO BLAME FOR THE COMING CRASH

August 5, 2015

FED LUNACY IS TO BLAME FOR THE COMING CRASH

This week John Hussman’s pondering about the state of our markets is as clear and concise as it’s ever been. He starts off by describing the difference between an economy operating at a low level versus a high level. He’s essentially describing a 2% GDP economy versus a 4% GDP economy. We have been stuck in a low level economy since 2008. And there is one primary culprit for the suffering of millions – The Federal Reserve and their Wall Street Bank owners. They are the reason incomes are stagnant, the labor participation rate is at 40 year lows, savers can only earn .25% on their savings, and consumers have been forced further into debt to make ends meet. Meanwhile, corporate America and the Wall Street banks are siphoning off record profits, paying obscene pay packages to their executives, buying off the politicians in Washington to pass legislation (TPP) designed to enrich them further, and arrogantly telling the peasants to work harder.

In economics, we often describe “equilibrium” as a condition where demand is equal to supply. Textbooks usually depict this as a single point where a demand curve and a supply curve intersect, and all is right with the world.

In reality, we know that economies often face a whole range of possible equilibria. One can imagine “low level” equilibria where producers are idle, jobs are scarce, incomes stagnate, consumers struggle or go into debt to make ends meet, and the economy sits in a state of depression – which is often the case in developing countries. One can also imagine “high level” equilibria where producers generate desirable goods and services, jobs are plentiful, and household income is sufficient to demand all of that output.

…click on the above link to read the rest of the article…

Money and Spheres

August 1, 2015

Money and Spheres

In a tiny subsection of the analytical world, analysis is becoming more pointed and poignant. I appreciate Bill Gross’s August commentary, where he concluded: “Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.”

I’ll include the names Russell Napier, Albert Edwards and David Stockman as serious analysts whose views are especially pertinent. I presume each will exert minimal effect on “the establishment.”

Back to Bill Gross: “The BIS emphatically avers that there are substantial medium term costs of ‘persistent ultra-low interest rates’. Such rates they claim, ‘sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.’ ‘…The reason [the Fed will commence rate increases] will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history.”

Count me skeptical that central bankers are on the brink of “wising up.” I have less confidence these days in the Fed than ever. For one, they are hopelessly trapped in Bubbles of their own making. Sure, crashing commodities and bubbling stock markets incite a little belated rethink. Yet I’ve seen not a hint of indication that policymakers are about to discard flawed doctrine. Devising inflationary measures – clever and otherwise – will remain their fixation. For a long time now, I’ve identified inflationism as the root cause of precarious financial and economic dynamics that will end in disaster. It’s been painful to witness the worst-case scenario unfold before our eyes.
…click on the above link to read the rest of the article…

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

May 5, 2015

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

Warren Buffett believes “that bonds are very overvalued“, and a recent survey of fund managers found that 80 percent of them are convinced that bonds have become “badly overvalued“. The most famous bond expert on the planet, Bill Gross, recently confessed that he has a sense that the 35 year bull market in bonds is “ending” and he admitted that he is feeling “great unrest”. Nobel Prize–winning economist Robert Shiller has added a new chapter to his bestselling book in which he argues that bond prices are “irrationally high”. The global bond bubble has ballooned to more than 76 trillion dollars, and interest rates have never been lower in modern history. In fact, 25 percent of all government bonds in Europe actually have a negative rate of return at this point. There is literally nowhere for the bond market to go except for the other direction, and when this bull market turns into a bear it will create chaos and financial devastation all over the planet.

In a recent piece entitled “A Sense Of Ending“, bond guru Bill Gross admitted that the 35 year bull market in bonds that has made him and those that have invested with him so wealthy is now coming to an end…

Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date.

…click on the above link to read the rest of the article…

Bill Gross Interview: ZIRP Causes Too Much Debt, Too Many Zombies, Not Much Trickle-Down, Busted Pensions

March 3, 2015

Bill Gross Interview: ZIRP Causes Too Much Debt, Too Many Zombies, Not Much Trickle-Down, Busted Pensions

In an Bloomberg Television interview Bill Gross of Janus Capital spoke with Bloomberg Television’s Trish Regan about the outlook for Federal Reserve policy, the U.S. economy and his objectives at Janus Capital.

Key Quotes

“Not even thin gruel is being offered to our modern-day Oliver Twist investors. You have to pay to come to the dinner table and then sit there staring at an empty plate.”
“The interest rate can’t be raised substantially even over the next two to three years.”
“The US has escaped the liquidity trap that euroland and Japan are in. But, not necessarily for all time.”
“[Low interest rates] keeps zombie corporations alive because they can borrow at 3 and 4 percent, as opposed to the 8 or 9 percent. It destroys business models. It’s destroying the pension industry and in the insurance industry.”
“ultimately, [low interest rates] destroy the capitalistic model at the margin. Instead of investing in the real economy, [corporations] can now simply borrow at close to 0 percent and buy their own stocks, which yield 2 or 3 percent on a dividend basis and provide a return of 6 or 7 percent on an earnings to price ratio basis.”

…click on the above link to read the rest of the article…

10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW

January 7, 2015

10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW

If you do not believe that we are heading directly toward another major financial crisis, you need to read this article. So many of the exact same patterns that preceded the great financial collapse of 2008 are happening again right before our very eyes. History literally appears to be repeating, but most Americans seem absolutely oblivious to what is going on. The mainstream media and our politicians are promising them that everything is going to be okay somehow, and that seems to be good enough for most people. But the signs that another massive financial crisis is on the horizon are everywhere. All you have to do is open up your eyes and look at them.

Bill Gross, considered by many to be the number one authority on government bonds on the entire planet, made headlines all over the world on Tuesday when he released hisJanuary Investment Outlook. I don’t know if we have ever seen Gross be more negative about a new year than he is about 2015. For example, just consider this statement…

“When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over.”

And this is how he ended the letter…

…click on the above link to read the rest of the article…

Gross Says Fed May Become ‘Dovish’ as Oil Prices Plunge – Bloomberg

December 12, 2014

Gross Says Fed May Become ‘Dovish’ as Oil Prices Plunge – Bloomberg.

(Bloomberg) —Bill Gross, who used to run the world’s largest bond fund before joiningJanus Capital Group Inc. (JNS) in September, said the Federal Reserve may become more “dovish” after oil prices plunged in recent weeks.

The Federal Reserve would have to take lower oil prices “into consideration,” Gross said today in a Bloomberg Surveillance interview with Tom Keene. “I think that yes, it moves towards a dovish stance relative to what the market expected a few days ago.”

Benchmark U.S. oil prices have fallen below $60 a barrel, extending losses today as the International Energy Agency cut its global demand forecast for the fourth time in five months. Gross said with inflation showing no signs of approaching the Fed’s 2 percent target, policy makers won’t be in a hurry to raise interest rates.

“Why would they start to eliminate language that talked about an extensive period of time when the U.S. itself is, not deflating but disinflating, and certainly not moving in the direction of its 2 percent target,” Gross said.

The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries, said Gross, who co-founded Pacific Investment Management Co. in 1971 and left the firm Sept. 26 to run an unconstrained bond fund at Janus.

…click on the above link to read the rest of the article…

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