The Mother Of All Bond Bubbles Meets The Orange Swan

There is utterly no doubt left. The stock market is being driven exclusively by mindless headline reading algos and idiot day traders who are completely uncoupled from economic and financial fundamentals and even common sense itself.

Anyone who cares about their current wealth and future economic well-being, therefore, should not be within a country mile of the casino. The bond and stock market bubbles are horrific accidents just waiting to happen.

Moreover, there are unlimited catalysts for the next financial crisis at all points on the compass. The Trade War and bond market contretemps of last Friday alone were a potent reminder that the Oval Office is occupied by an unhinged mercantilist madman and that the central banks of the world have essentially destroyed any semblance of honest price discovery in the $90 trillion global bond market.

With respect to the latter, bond prices and yields have gone from the ridiculous to the sublime. The US Treasury market was the only sovereign debt market left with a positive integer (>1) in front of the yield, but as of Friday the entire UST yield curve (all the way out to 30 years) traded below 2.0% for the first time in history.

Yet for want of doubt, here is the best trend measure of inflation—the 16% trimmed mean CPI—since the Fed formally adopted its 2.00% target in January 2012. During that 7.5 year period, the average year-over-year increase has been 1.96%, which is about as close to target as you are going to get in the realm of government work.

Moreover, despite short-run undulations above and below the 2.00% demarcation line in the chart, the trend rate is absolutely clear. The Y/Y rate in July 2012 was 1.99% and for July 2019 it was 2.20%. There is no trend deceleration or shortfall—just 2% inflation over any reasonable stretch of time you might wish to examine.

Of course, what a 2.0% world of domestic trend inflation actually means is that now even the entire $16 trillion Treasury market is under water in real terms.



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