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Global Bond Bubble Will Cripple All Investors

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http://www.cityam.co...-when-it-bursts

One of the many unintended consequences of QE, therefore, is that assets in mutual funds that invest in bond, credit and high yield have rocketed since 2007; assets in high yield exchange-traded funds (ETF) (focusing primarily on corporate/mortgage bonds) have grown even faster. And still it continues: there was a $1.7bn inflow into leverage loan funds last week, a new record in notional terms. The figures are scary: inflows into junk bonds are up by 80.5 per cent since 2008, for example.

When the bubble bursts, owners of all kinds of bonds will be hammered, including of course Treasuries. But to make matters worse, the fixed-income like investments that the private sector has fallen in love with are highly illiquid. In most cases, a few thousand units of each investment grade and junk bond are traded every day; by contrast, volumes in the benchmark cash Treasury bond can easily be above $100bn. So when the crash does come, investors will all try to sell at once, liquidity will evaporate, prices will undershoot and plummet, and panic will set in. It will be a case of 2008 all again, with corporate bond yields and mortgage rates shooting up, exacerbated by the fact that the Dodd-Frank financial regulations mean banks can no longer act as counterparties in those markets in any significant way – they have largely been frozen out. So yes, there's a massive bond bubble – but the details are even worse than the big picture.

Sure, all of this will be "unexpected" if it comes to pass.

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It is interesting that there is a distinct lack of viewing what people have said in the past, then you can dismiss their view as hog-wash. This is not directed at AH, or financials particularly, but the increasingly large number of people that think their view is important, or correct, rather it is an attempt to justify their existence.

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http://www.cityam.co...-when-it-bursts

Sure, all of this will be "unexpected" if it comes to pass.

But CityAM fail to explain how the bubble will burst.. e.g. end of QE and the fact that QE will not end and as long as QE ends after the bond matures/refinanced, then the investors will remain happy.

US treasuries are unlikely to really be a problem if held to maturities. The only problem is when junk bonds start defaulting.

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But CityAM fail to explain how the bubble will burst.. e.g. end of QE and the fact that QE will not end and as long as QE ends after the bond matures/refinanced, then the investors will remain happy.

Everyone is warning about this but no timescales are given. Surely the BOE will print print print - that is their answer for most things?

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City AM believe in nonsense like the 'Bond Vigilantes'.

Ben can set policy and thus bond rates wherever he wants them.

Junk bond debt, sure.

The 'rich' are in for a kicking - quite right too!

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City AM believe in nonsense like the 'Bond Vigilantes'.

Ben can set policy and thus bond rates wherever he wants them.

Junk bond debt, sure.

The 'rich' are in for a kicking - quite right too!

No he can't. Not without blowing up the world. US housing is in bubble territory again, along with stocks, bonds and oil etc. Even though US recovery is still anaemic, market is forcing his hand. He has to taper IMHO.

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But CityAM fail to explain how the bubble will burst.. e.g. end of QE and the fact that QE will not end and as long as QE ends after the bond matures/refinanced, then the investors will remain happy.

US treasuries are unlikely to really be a problem if held to maturities. The only problem is when junk bonds start defaulting.

But QE has to end at some point, or inflation will get even worse. And inflation will also erode the capital of those holding bonds to maturity.

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No he can't. Not without blowing up the world. US housing is in bubble territory again, along with stocks, bonds and oil etc. Even though US recovery is still anaemic, market is forcing his hand. He has to taper IMHO.

Explain why not?

FED controls the short rate.

FED can (and is doing) control the long rate by buying whatever duration bonds it wishes in whatever quantity it wishes. The only real limit is the supply of bonds.

There is no inflation.

Market isn't forcing his hand at all. That's drivel. He's forcing the market's hand if anything.

Quite comical listening to perma (hyper) inflationistas repeating this nonsense for the last 5 years.

FED can do whatever it likes, unless the right wing nutjobs lynch them.

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But QE has to end at some point, or inflation will get even worse. And inflation will also erode the capital of those holding bonds to maturity.

But how can general inflation occur as long as the plebs don't get the extra money cash. Some will trickle down no doubt, but I suppose a large chunk of those are just being used as a medium of exchange when swapping a Mayfair townhouse with a Yatch or a 5th Avenue Penthouse.

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But how can general inflation occur as long as the plebs don't get the extra money cash. Some will trickle down no doubt, but I suppose a large chunk of those are just being used as a medium of exchange when swapping a Mayfair townhouse with a Yatch or a 5th Avenue Penthouse.

Valid point.

Frankly, I'm getting quite confused with our current global economy. Too many big weird stuff going on at the same time. :(

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But how can general inflation occur as long as the plebs don't get the extra money cash. Some will trickle down no doubt, but I suppose a large chunk of those are just being used as a medium of exchange when swapping a Mayfair townhouse with a Yatch or a 5th Avenue Penthouse.

Spot on. You only get high inflation (the kind that many in this forum talk about) with wage inflation, and in an open economy you only get wage inflation with low unemployment. So if the transmission mechanism of base money into broad money is broken, printing money doesn't make much difference.

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Explain why not?

FED controls the short rate.

FED can (and is doing) control the long rate by buying whatever duration bonds it wishes in whatever quantity it wishes. The only real limit is the supply of bonds.

There is no inflation.

Market isn't forcing his hand at all. That's drivel. He's forcing the market's hand if anything.

Quite comical listening to perma (hyper) inflationistas repeating this nonsense for the last 5 years.

FED can do whatever it likes, unless the right wing nutjobs lynch them.

There are inflationary bubbles all over the world created intentionally or otherwise by Bernanke and his fellow Krugmanites. Stocks, bonds, real estate, commodities, oil, food etc.

US house prices are up 14% in a year, 21% in four months (non seasonally adjusted). Median prices are less than 7% below 2007 peak. Meanwhile inventory is at decade-long lows and single family home starts are back where they were in 2010. Those are bubble metrics created by a combination of Fed subsidised mortgages and restricted supply. A bubble market with no volume is another accident waiting to happen. Unless Bernanke tapers soon he risks an even bigger fallout than last. The market is forcing his hand.

housinginflationnotrecovery.png

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Spot on. You only get high inflation (the kind that many in this forum talk about) with wage inflation, and in an open economy you only get wage inflation with low unemployment. So if the transmission mechanism of base money into broad money is broken, printing money doesn't make much difference.

Yep, it's gonna be a long haul for us poor folk......I agree, no wage inflation, well maybe a tad say 1.5%, but with costs rising at +3%, no wage inflation....Yep they can and will print, but it will never make an ounce of difference to increasing wages.....

I agree ED, totally......Totally new un-chartered waters for many on here.....

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There are inflationary bubbles all over the world created intentionally or otherwise by Bernanke and his fellow Krugmanites. Stocks, bonds, real estate, commodities, oil, food etc.

US house prices are up 14% in a year, 21% in four months (non seasonally adjusted). Median prices are less than 7% below 2007 peak. Meanwhile inventory is at decade-long lows and single family home starts are back where they were in 2010. Those are bubble metrics created by a combination of Fed subsidised mortgages and restricted supply. A bubble market with no volume is another accident waiting to happen. Unless Bernanke tapers soon he risks an even bigger fallout than last. The market is forcing his hand.

housinginflationnotrecovery.png

Given how much US house prices fell, a sharp bounce was inevitable at some point. it is ridiculous to call a bounce at the end of a market crash "a bubble". From the lowest point, it has only retraced 1/3 of the market fall and besides it doesn't display any of the characteristics of a bubble - it isn't even speculative.

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Given how much US house prices fell, a sharp bounce was inevitable at some point. it is ridiculous to call a bounce at the end of a market crash "a bubble". From the lowest point, it has only retraced 1/3 of the market fall and besides it doesn't display any of the characteristics of a bubble - it isn't even speculative.

I think 20% yoy change count as a bubble. But the inflation will be limited to stuffs that the plebs dont buy much.

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There are inflationary bubbles all over the world created intentionally or otherwise by Bernanke and his fellow Krugmanites. Stocks, bonds, real estate, commodities, oil, food etc.

US house prices are up 14% in a year, 21% in four months (non seasonally adjusted). Median prices are less than 7% below 2007 peak. Meanwhile inventory is at decade-long lows and single family home starts are back where they were in 2010. Those are bubble metrics created by a combination of Fed subsidised mortgages and restricted supply. A bubble market with no volume is another accident waiting to happen. Unless Bernanke tapers soon he risks an even bigger fallout than last. The market is forcing his hand.

WTI crude was $147 in July 2008. It's $104 today in nominal terms 40% lower.

SPX has taken 6 years to get back to where it was in 2007. In nominal not real terms. Adjusted for your imagined inflationary bubble (what inflation number where you thinking of?) it must de facto be significantly lower.

Silver has fallen 60% in nominal terms in 2 years

Gold has crashed 30% in 2 years.

You can check out other food/commods for yourselfetc etc etc ......

US housing reverted to -2sds in real terms, and has bounced somewhat as you'd expect when it's so CHEAP on any historical measure. Mostly hedge funds and PE have been snapping it up because it has been excellent value. If you took out a 30 yr fix last July you're laughing.

Others have mentioned the absence of wage inflation.

All this despite $6 trillion of CB asset purchases.

Your argument simply doesn't stack up I'm afraid.

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WTI crude was $147 in July 2008. It's $104 today in nominal terms 40% lower.

SPX has taken 6 years to get back to where it was in 2007. In nominal not real terms. Adjusted for your imagined inflationary bubble (what inflation number where you thinking of?) it must de facto be significantly lower.

Silver has fallen 60% in nominal terms in 2 years

Gold has crashed 30% in 2 years.

You can check out other food/commods for yourselfetc etc etc ......

US housing reverted to -2sds in real terms, and has bounced somewhat as you'd expect when it's so CHEAP on any historical measure. Mostly hedge funds and PE have been snapping it up because it has been excellent value. If you took out a 30 yr fix last July you're laughing.

Others have mentioned the absence of wage inflation.

All this despite $6 trillion of CB asset purchases.

Your argument simply doesn't stack up I'm afraid.

My initial respose was "London house prices", but according to the Nationwide they have simply recovered to their previous 2007 levels rather than inflated.

Prime London housing may be a different matter, but I think this may actually lend weight to your argument, since it's seen as this decade's "safe haven".

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But how can general inflation occur as long as the plebs don't get the extra money cash. Some will trickle down no doubt, but I suppose a large chunk of those are just being used as a medium of exchange when swapping a Mayfair townhouse with a SHIP or a 5th Avenue Penthouse.

In layman's terms, post of the month, yep about sums it up.......

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Explain why not?

FED controls the short rate.

FED can (and is doing) control the long rate by buying whatever duration bonds it wishes in whatever quantity it wishes. The only real limit is the supply of bonds.

There is no inflation.

Market isn't forcing his hand at all. That's drivel. He's forcing the market's hand if anything.

Quite comical listening to perma (hyper) inflationistas repeating this nonsense for the last 5 years.

FED can do whatever it likes, unless the right wing nutjobs lynch them.

I agree with everything except your inflation comments.

There has been price inflation, firstly re-inflation (I think you forget the deflation in 2008 that was reversed) and quite a bit of asset price inflation.

They need to print more to cause high/hyperinflation (to cover at least a 20-30% deficit of revenue over several years, it sometimes needs more)

The UK has had the biggest QE programmes so far and it was only half that.

The worrying thing about this all this, is that the government and the deficit doves think they've got away with money printing, even saved the world, and will feel emboldened to print even more come the next wobble or crisis, in the mistaken belief that what they are doing is benign.

Edited by GradualCringe

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WTI crude was $147 in July 2008. It's $104 today in nominal terms 40% lower.

SPX has taken 6 years to get back to where it was in 2007. In nominal not real terms. Adjusted for your imagined inflationary bubble (what inflation number where you thinking of?) it must de facto be significantly lower.

Silver has fallen 60% in nominal terms in 2 years

Gold has crashed 30% in 2 years.

You can check out other food/commods for yourselfetc etc etc ......

US housing reverted to -2sds in real terms, and has bounced somewhat as you'd expect when it's so CHEAP on any historical measure. Mostly hedge funds and PE have been snapping it up because it has been excellent value. If you took out a 30 yr fix last July you're laughing.

Others have mentioned the absence of wage inflation.

All this despite $6 trillion of CB asset purchases.

Your argument simply doesn't stack up I'm afraid.

Gold and silver collapsed because they were speculative hedges. Gold still is.

There's no wage inflation because the world is in a demand depression. By pushing on a string the Krugmanites have created inflation in financial assets like houses, stocks etc but barely impacted the real economy; to wit the weakest US recovery on record, UK GDP still 4% smaller than in 2008 etc. Global economy weaker than it's been in a generation. All this despite because of CB asset purchases.

No bubble in the Nikkei?

20130515_nky.jpg

Blow-off tops for oil and natural gas in 2008 were caused by Goldman's (and others) quietly running off the cash they were making from AIG's (and others) ruinous CDS exposure. In effect, this is where the phantom equity from the housing bubble ended up (briefly). Moving average price has gone up more or less continuously since 2009 when QE/ZIRP began. As has the moving average price for gas, US shale gas (over) production excepted.

13-natgasprices_large.JPG

All time sterling high for Brent crude was 2012 but may be beaten this year if Carney starts printing (as I assume he will, being a Krugmanite wrecker of longstanding).

Dollar monthly average oil price. Blow-off top in 2008, inflationary ramp ever since.

ct023_en.gif

Record food prices.

fao-food_price_index_deflated_201201.jpg

Because of the ongoing demand failure in the real economy commodity price inflation is more ambiguous - but it's really not that hard to identify.

20121103_inc383.png

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Given how much US house prices fell, a sharp bounce was inevitable at some point. it is ridiculous to call a bounce at the end of a market crash "a bubble". From the lowest point, it has only retraced 1/3 of the market fall and besides it doesn't display any of the characteristics of a bubble - it isn't even speculative.

:blink:

US house prices hit record high in several US states.

"It's just like 2006."

Bernanke's Housing Bubble 2.0.

http://www.theguardian.com/money/us-money-blog/2013/jul/30/troubles-new-us-housing-bubble

It was while I was standing in the living room of a beach bungalow located about a mile from the Pacific Ocean in Los Angeles' Venice Beach neighborhood, that I heard the phrase "It's just like 2006" uttered twice in a 10-minute span of time by two separate people.There was no irony intended.

Bubble, bubble …

The real estate market in southern California, like in many parts of the United States, is once again as hot as it was back in the last decade, when Robert Kiyosaki told everyone it was okay to buy multiple properties with little money down, and when Suze Orman advised purchasing a piece of property to live in since real estate would be the best investment just about every middle class family could ever make.

We all know what happened next. But the housing crash – well, in the living room of this human dollhouse in Venice Beach, that's so 2009 or 2010.

The two-bedroom, one bath, under-900-square-foot house was listed for sale at a price of $899,000. At an open house held on July 21, more than one hundred people showed up over the space of three hours. At another, two days later, several dozen. There is a young woman with her mother and broker, frantically measuring walls to see if her furniture will fit in the space. One shopper points to the windows, asking rhetorically why they haven't been replaced with newer, more pristine frames. Still another woman walks in and tells Jerry Jaffe, the real estate broker listing the home, about all the homes she's bid on.

"We lost Penmar," the would-be homeowner says sadly, referencing a recent house sale located a few blocks away.

"We only need one good buyer," Jaffe responds encouragingly.

The Venice bungalow will, by 5pm the next day, have seven.

Two of the offers for this tiny home are all cash, and a number of others promise a 50% down payment. Several are what Jaffe calls "way over" asking, though he legally can't share the final price.

Not bad for a property that last sold in a short sale a little more than two years ago for $600,000.

As for the previous owners? They had had paid $870,000 in March of 2007.

It's back.

Such home sales are taking place all over the Los Angeles basin in recent months. Prices are climbing and they are climbing fast. The Case-Schiller Home Price Index reports that in April, the last month for which they have data, prices increased 3.4% in a month. DataQuick, which also collects information on Southern California home sales, claims home prices in the region increased by 28% year over year, the greatest amount they've ever recorded since they began keeping records in 1988.

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  • 246 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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