US Dollar Launch

US Dollar Launch = The Most Destabilizing Domino

Headlines:

Fixed Income Sovereign Yield Spreads Are ENORMOUS.

US Dollar Elasticity To Sovereign Spreads = Heightened.

Feedback To Risk Assets = Not Pretty.

Q3 hedge fund letters, conference, scoops etc

US Dollar Launch


In An Increasingly Inter-Connected Global Economy…How To Explain This Graphic [courtesy of Thomson Reuters] Demonstrating The Enormous 2, 5 & 10 Year Yield Premiums Offered On U.S. Sovereign Debt Vis-A-Vis Developed Market “Peers”?

US Dollar Launch


The Answer = Global Central Bankers Are Still In The Midst Of A Decade Long Panic…Still Blowing Ever Bigger Financial Market Bubbles…In Order To Create An Economic Mirage…Falsely Indicating That All Is Well With The Global Economy…Thereby Justifying Their Desperate + Non-Conventional Monetary Policies.

However IF The Global Economy Is Actually Slowing Down As Much As The Forward Looking Equity Markets Are Suggesting…Then The Feared Central Banking Policy Mistake Is Not A Concern For The Future…Rather An Already Executed Blunder.

Surprisingly…The Massive Miscue Is NOT Too Much Monetary Tightening…As Reported By The Mainstream Media.

Rather…It Is Too Much Monetary Policy Slack…So Loose That, Ironically, Other Than The Relatively Tight Federal Reserve…Most Central Banks Have Missed The Opportunity To Tighten Financial Conditions…In Order To Pre-Empt A Severe Financial Market Shock…Initiated By Their NIRP/ZIRP Interest Rate Policies That Have Been Too Low For Too Long…Feeding Extreme Financial Market Speculation.

Therefore…The Consequences For Frothy Global Risk Markets [Commodities + Equities + Real Estate] May Be Severe…As The Response Mechanism From Central Banks Could Prove To Be Economically Impotent + Insufficient As They May Have Already “Shot Their Liquidity Wads”.


Because If Interest Rates This Absolutely Low…For So Long…Cannot Self Sustain A Robust Economic Recovery…Then Even Lower Absolute Rates [likely to follow] Will Also Surely Fail…And Clearly Signal Global Central Bank Panic: Part II.

And It Will Be Much More Transparent Than The Illusory Panic Of The Past Decade…That Spurred A Record Issuance Of Cheap Debt…By Both Corporates And Sovereigns…Intended To Thrust Economies Upward + Beyond “Escape Velocity.”

It Actually Worked For A While But The Penalized Savers Never Fully “Bought In” To The Liquidity Experiment Like The Borrowers Did. And Now The Debtors Are Finally Realizing That Debt Is That Unfortunate “Gift” That Just Keeps On “Taking”…Even When Incomes + Revenues Slow.

Furthermore, Much Of The Debt Was Deployed Into Capital Inefficient
Corporate Share Repurchases + Debt Servicing Costs…Rather Than Capital Investment + R&D [the true building blocks of a rational economic expansion].

Essentially Corporates + Sovereigns Elected To Speculate On Their Own Balance Sheets And Income Statements…Rather Than Investing In And Innovating Their Core Businesses.


So Beyond The Yield Premium Argument…There Could Be A Further, Final Flight To The Greenback…Increasingly Hamstringing Both U.S. Exports…And…Emerging Market Economies That Have Specifically Feasted On Mountains Of Dollar Denominated Debt.

The Negative Feedback Loop Of A Strong Dollar + Weakened Emerging Economies Could Be An Acutely Painful Global Economic Event.

And Therein Lies “The Rub” As The Stacks Of Newly Issued Global Debt…Even Though Not Very Costly To Service [especially for those sovereigns monetizing their debentures…such as the U.S.]…Still Acts As A “Ball And Chain” On Multi-National/Sovereign:

i. Balance Sheets +

ii. Credit Ratings +

iii. Income Statements

…Impeding Future Growth…While Both The “Balls” And The “Chains” Only Get Heavier.


Complicating Matters More…Central Banking Leaders Now Have Another Annoying Problem = Frustrated Politicians [i.e. U.S. Prez Donny T.] Stepping On Their Formerly Hallowed Policy Turf.

Political Pressure Is Mounting As Their Too Stale Market Liquidity Measures + Absurdly Inaccurate “Forward Guidance” Are Beginning To Erode Their “Money Printing Credibility.”


BTW…As Reported By Bloomberg…Has Anybody Noticed That The Federal Reserve Is Currently Posting A “NEGATIVE NET WORTH” Position On Their Balance Sheet?

https://www.bloomberg.com/news/articles/2018-12-12/fed-piles-up-66-billion-in-paper-losses-as-it-faces-trump-wrath

Why Doesn’t Anybody Seem To Care About This?

Because Most Market Actors Are Still “All In” On Central Banks.

And Why Shouldn’t They Be?  It’s Been A 1-Way Winning Bet For Almost 10 Years.

Like Clockwork…When “Push Comes To Shove“…Central Bankers……ALWAYS “CAVE” TO THEIR MOST IMPORTANT UNSPOKEN OBJECTIVE = ACCOMMODATING GLOBAL EQUITY MARKETS.

From Bernanke To Yellen To Powell To Draghi To Kuroda To Carney etc…etc.

Naturally…This Has Not Gone Un-Noticed…Which Is Why The Most Lopsided Trading Position In The Galaxy = LONG CENTRAL BANK LIQUIDITY.

This Out-Sized + Spectacularly Over-Owned Position…If Ever Forcefully Unwound…Will Be Very Ugly For Risk Assets.

Article by Global Slant


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