‘A Taylor Away From Losing A Year Of Carry In 15 Minutes’
Via Kevin Muir of “The Macro Tourist” fame
Just one more post about yield curves - I promise! With Friday’s release of the CFTC commitment of traders report, I couldn’t resist.
In the coming years, I believe the yield curve steepener has the potential to be one of the all-time great trades. Eventually, I think the Fed, along with all the other developed countries’ Central Banks, will lose control of the long end, and yield curves throughout the world will explode to record wides.
Agreed he is likely to make the dovish final call – maybe even re-appointing mom – the trick will be to listen for his fake-outs to get the market off-sides – which it pretty much is – in the meantime to set up his front running fun.
Yeah dovish. But my concern about the steepener trade is, what prevents Powell and the other new doves that trump will appoint from buying long bonds via QE4 to thwart higher long yields and ruin the trade? Inflation expectations? Unlikely, because gov’t can/will lie about real inflation and do QE anyway. So for this trade to work, I think the government must lose control of things. In which case, bitcoin and real assets will do better as everyone finally sees fiat for the sham that it is and flees it. Readers here “get it” but the broad public doesn’t, so we’re not even close to that time yet.
And here you have it… Yellen’s speech this wkend on ‘Monetary Policy Since the Financial Crisis’:
“The probability that interest rates may need to be reduced to their effective lower bound at some point is uncomfortably high, even in the absence of a major financial and economic crisis. The bottom line is that we must recognize that our unconventional tools might have to be used again. If we are indeed living in a low-neutral rate world, a significantly less severe economic downturn than the Great recession might be sufficient to drive interest rates back to their lower bound.”
No removing the QE punch bowl or allowing yields to find their market price. PARTY ON!…lol
So BTFD.
So if we exclude the “I want a new great depression now” Taylor, who would be the only one to try to let the markets decide by how much the fall in assets (bonds) would be, we only get the “I will put the entire financial system on the Fed balance sheet if I have to” cabal, good times…
Just one more thing, capitalism without somewhat free financial markets, still capitalism?