Central Banks loss of control: The markets of manipulation and their collective activism.

 

As the Federal Reserve begins to lose control of its own interventions into capital markets, with over 7 Trillion dollars already down as asset purchases that line its balance sheet, the en masse of monies to counter any deflation that may have occurred via COVID-19 freezing bond markets in March 2020 and the terrible decision to buy Junk Bonds and Exchange-Traded Funds (ETFs) has created the speculation buy from hell.  And it is not just greedy Wall Street, but so called Main Street, the general populous have joined the chorus of an all in bet, noted with the fiasco with the unprofitable and junk rated company GameStop, egged on by the bizarro 'libertarian' and soon-to-be trillionare on Twitter as a campaign against Hedge Funds.   With the vaccinations and successful lockdowns in reducing deaths and infections which in turn relieved the stressed hospital system throughout Europe and America, the stock market has been, albeit deceptive, the oracle of a future all clear, except one of the marvels of free-markets and its future indicators are the yield curves (interest rates) on bonds, which are now rising.  In fact they are now rising faster than anticipated. The interest rate spikes are indicative of speculative markets like stocks and real estate, to which money is pouring out of safe havens, such as bonds, gold and moving into a greed trade that includes Cryptocurrecies, which offer no interest rate return whatsoever.  Due primary to the excessive amount of liquidity in the system, which is almost entirely responsible by Central Bank's asset purchasing and quantitative easing programs (printing money) all in the shadow, although it has not completely passed, of COVID-19.

As discussed in Markets of debt and the Food Inflationshock, in March 2020, adjusted for inflation the 10 year Treasury note dipped below 1%, borrowing costs, for that brief moment, were now in favor of the borrower, to the extend what one would payback would be less than what is being lent, with the lender making little or no money off yields and essentially lending at a loss.   The UK, Japanese and European Central Banks are now offering negative interest rates on bonds, namely the 30yr, since they, the central banks support the yield curve, monitoring its fluctuates – they have stepped over the line in trying to control and manipulate rates to become negative, which has driven billions of dollars out of bonds into risker assets and their higher yielding dividends of stocks. But, despite these efforts in trying to suppress the rates of bonds, particularly US Treasuries, the outpouring of capital into stocks has forced these surging bonds rates, more so the 10 year to spike, closing at 1.58% February 25th 2021, which panicked stock markets such as the so called growth sector, with a promose pf profits at some point in the future, these technological stocks were substantially sold off.

The issue that will be begin to ring true,  despite a mandate of a Central Bank that believes that they can ward of higher unemployment by allowing the stock market to surge in all its mania, there is also feverish speculation of retail investors using mobile apps via stimulus cheques.  According to a Deutsche Bank analysis on the $465 billion about to be delivered to American households, they estimate that $170 Billion will flow into equities to bet on small unprofitable companies split between investors who will buy long term and the others via Twitter and Reddit that are on a strange crusade, although it is still lined with greed, to squeeze billion dollar hedge funds out of short selling positions.

Under all this is of course inflation, higher costs to build inventories, pay staff and to pay down insurance which is always at a premium.   The other factor is profits, that have all been crimped by the pandemic, now with the Northern Hemisphere about to reopen from its lockdowns , don't expect fire sales and cheap prices.  Rather costs of products will be substantially higher to cover the lack of profits from a shutdown 2020.   So, in a simple way of looking at these markets that move from speculative driven greed into safe havens to protect money, which are bonds and this rapid rise in bond yields could be indicative that something major is lingering in all this intervention, manipulation and market distortions.   And it may not just be inflation on foods and bills, but something more dramatic.