Who Is King? The Bond Market Or The Fed

Historical Stock, Securities, Certificates, Fund, Bonds

The King Arthur story is battle between a false king and the true king. Generally the movie involves surprises, love and violence, and all this coming to the risk on markets very soon. 

The financial blog space expects the Fed to do some sort of Yield Curve Control (YCC) to hold interest rates down while inflation moves higher, this is allowing inflation to run hot. The Fed wishes to do this over time to deflate the debt away. Very similar to the 1940's post WW2, yields were pegged to 2% and risk-on assets went sky high.

However, Peter Boockvar suggests the Fed may soon learn it is not in control and the true king of the markets is the bond market. Peter says simply the bond market is telling the Fed to 'bite me'.

The Fed is not used to taking second fiddle to any challenger, and you can bet it will not give up the chair of market king easily, and they will try to smash the bond market into submission with forms YCC, TWIST and more QE.

Of course if the Fed fails, all markets will be repriced to the new cost of money and you can bet the market violence will be spectacular.

The pressure of future inflation agrees with current bullish up swing in the cycle below. (Cycle tools are in readtheticker.com)

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Long term cycles, bullish for higher interest rates, inflation, commodities. Notice the 1940's period and how flat interest rates were, and what happened in the 1950's and after.

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The US debt percent of GDP now is much higher than in the 1940's, the chart below is only the Federal or Government debt, if you add on corporate and household, just double the y-Axis percentage numbers. Currently the US interest expense is nearly equal to the US military budget.



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