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Defiant Stocks ‘Taunt’ Fed By Ignoring Dramatic Rates Repricing
Over the past week, quite a bit of digital ink was spilled editorializing around the disparate signals from stocks and bonds in the US.
Rates have repriced dramatically this month as traders had no choice but to acknowledge the policy implications from a succession of hot data, culminating in what BMO's US rates team aptly described as an "impressive" read on retail sales.
Prior to a head-spinning reversal, the 2s10s inversion reached new cycle extremes Wednesday at almost -92bps. Two-year US
Warren just dropped an explanation of his own. I thought his most compelling point (havent watched the whole thing yet) was that the expansionary effect of a higher ffr wasn’t as readily apparent when debt:gdp was 50-60%, but now that it’s at 120% the inflationary effect of a trillion in interest payments is hard to ignore.
Starts around the 3 minute mark: https://m.youtube.com/watch?v=2JDwjOfTp5E
H: how much do you think flow is liquidity driven? as suggested by recent reuters column despite apprent FED tightness GLOBAL cb liquidity has increased considerable since Q4 2022. liquidity injection from BOC/BOJ/ECB combined more than enough to dwarf any steps taken by the fed. We’re now seeing the spill over effects of this flowing into US equities market. This would seem to explain why the fed refuse to tie easing FCI to their policy – its now out of their control.
link to the article in case anyone interested: https://www.reuters.com/markets/markets-ride-1-trillion-global-liquidity-wave-mcgeever-2023-02-14/
Interesting counter points above by Jon and Moody, perhaps suggesting that the rally is less animal spirited than attributed by some.
A practical question of mine is whether margin compression in the US is going to overpower external QE for stocks (logically BoC ought to be easing, even if I don’t have data sources).
I can’t remember to what extent Warren Mosler has been covered by H Report, and the search bar seems to be gone. Googling the public parts of the site shows some mentions back in 2020 along with the peak of MMT discussions. Perhaps only indirectly because his work was essentially foundational for Kelton’s. Apparently he has a H Report account!
I’ve only covered / mentioned WM indirectly through articles on Kelton. He did comment on an article once, though.
Oh, and the search bar isn’t gone. It’s over there on the right where it’s always been.
Thanks, something was screwy with my browser window + large zoom, now I found it.
Having now watched the rest of that interview… we need a post on WM’s unified field theory. And that’s not even a lame euphemism for MMT or something, he literally digressed into a lay theory of the heavens, lol.
Warren, if you do in fact read H (maybe you guys live on the same island?), i’m looking forward to your (second) annus mirabilis!