An Orchestrated Bond Rotation?

SETTING UP A SUPPLY SHORTAGE

An equity market correction would now be exactly what the Fed would want and needs for the Bond Market.

Supply is being choked and with demand surging with a “Flight to Safety”, it would drive bond prices up and yields down. Financial Repression suggests this is exactly what we should expect if it is being successfully implemented. The Fed now controls the Inventory and the Government has been shrinking Supply on a relative basis. With 10K Baby Boomers retiring daily and an $84T unfunded entitlement problem, the government will soon need lots of cheap money – and the cheaper the better!

SHRINKING THE SUPPLY

IGNITE A SHORT SQUEEZE

IMPROVING THE RELATIVE YIELD

When stock prices go up it makes yields worse and therefore even ridiculously poor bond yields become attractive.
Driving the stock market up actually helps make bonds more attractive. The excess earnings yield (that is the difference between stock yields less the 10Y bond Yield) has spiked higher and appears to suggest a correction might be in order.
The Fed and Central Bankers may in fact have a very clever strategy going here. I’ll let you be the judge.

NEVER FORGET: QE IS ABOUT FUNDING GOVERNMENT DEBT

CREATING DEMAND THROUGH FEAR!

 

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FINANCIAL REPRESSION

MISPRICING OF RISK

SHADOW BANKING MUST BE RE-IGNITED

CONCLUSIONS

The Shadow Banking System must be re-ignited based on a desperate search for yield with almost mindless consideration to Risk.