By Catherine Austin Fitts
I wonder who flipped the switch.
Apparently last week spin central sent out the e-mail blast, telling everyone to call the top.
- Goldman Sachs (who lead the bust of the housing market in 2006 after they had so smartly helped to engineer the pump) announced that the US stock market bull was coming to a close.
- Fed Chairman Yellin warned that equity valuations are high.
You almost have to wonder if they were trying to stop a stampede out of the bond market.
The global bond market is indeed the 800lb guerrilla. It weighs in at more than twice the size of global stock markets and leveraged with many hundreds of trillions more in derivatives. The bond market has been a long term bull since the early 1980’s when interest rates started to fall. For several years now the big question has been when and how interest rates would bottom (and prices would top and start to fall.)
The bond kings joined the chorus with Doubleline CEO Jeffrey Gundlach calling the bottom in interest rates ( and the top in prices) and Fortress principal Novogratz announcing that the bull market in bonds is over.
The end of the long term bull in the bond market has been coming for several years now. With numerous sovereign interest rates going negative, there is clearly not much lower rates can go. The bond managers have reason to be nervous. Financial dealers have pulled a lot of capital and staffing from their fixed income desks. Where will liquidity come from? It remains to be seen.
The global stock market is a different matter. Traditionally, US equities have been able to digest interest rate rises of 100-150 basis points a year. The US market is several years overdue for a major correction – 10-25%. If we get one, that is a good thing. It is not the basis of hysteria despite the fact that many investors are still recovering from the shell shock of 2008-2012. The more important question is how the real US economy will recover from being harvested by corporations looking to juice up earnings and the politicians who use the federal budget and credit to help them do so in destructive ways.
If the S&P continues to correct, that does not mean that Europe and Asia will as well. Europe and Asia have lagged the US markets significantly. With European QE underway and financial reforms and improved capital liquidity in China, we may simply watch the divergence close.
Unless of course Mr. Global has given the orders to pull the plug. If that happens, time to dust off the “D” word that everyone is so desperately trying not to say – Deflation.
Healthy correction, Mr. Global pulling the plunge protection team from the field or wildcards at play? Let’s see what unfolds this week.
Related Reading:
Fed’s Yellen says equity valuations high, warns of ‘potential dangers’
Goldman: Expansion in Stock Valuations Will End When the Fed Raises Rates
The Bull Market in Bonds Is Over, Says Fortress’s Novogratz
Jeffrey Gundlach – CEO of Doubleline Capital: Rates have bottomed
