IMHO there has to be a theoretical limit when the amount of borrowing required to pay debt interest exceeds income (zombies & unicorns). Of course a country cannot go the traditional Chapter 7 route (UK bankruptcy) but it will always impact the currency in the end which we have seen many times before (Yugoslavia comes to mind as a stand-out).
"The experts have always chimed, "this time is different" - claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters." "Carmen Reinhart and Kenneth Rogoff definitively prove them wrong and who provocatively argue that financial combustions are universal rites of passage for emerging and established market nations."
"While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur."
Thanks, if what you (we) fear actually happens to 10y yields, we have to factor in that no-one has seen “normal” monetary conditions for nearly 30 years - my ‘abnormal’ clock started in 1997. That’s an entire generation raised on cheaper-than-normal money, sometimes free money. Don’t wonder if lots of people can’t understand what’s happening - including many policy makers. Which of course means we should be conscious of the possibility of a sudden “panicky pivot”.
Totally agree, one of the themes I have read consistently is that the yield curve never resteepens because long rates rise, rather it is always because the short end falls when the Fed cuts. however, given all the new features of the current economy, I have definitely become of the opinion that the 2yr at 5% and the 10yr at 5.5% - 6.0% is well within reason. My take is risk assets may not like that very much, but I could be wrong. Love your work, thanks
Thank you Andy. As a 'bond guy' I always fear risk assets - and so have missed some of the massive multi-decade bonanza (courtesy of central bank policy, and latterly government policy). But nothing comes for free, even if it takes multi-decades for the bill to land.
Excellent work Meyrick, thank you for all your effort in presenting a sound analysis. My thoughts go back to Reinhart & Rogoff:
https://www.amazon.co.uk/This-Time-Different-Centuries-Financial/dp/0691152640
IMHO there has to be a theoretical limit when the amount of borrowing required to pay debt interest exceeds income (zombies & unicorns). Of course a country cannot go the traditional Chapter 7 route (UK bankruptcy) but it will always impact the currency in the end which we have seen many times before (Yugoslavia comes to mind as a stand-out).
"The experts have always chimed, "this time is different" - claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters." "Carmen Reinhart and Kenneth Rogoff definitively prove them wrong and who provocatively argue that financial combustions are universal rites of passage for emerging and established market nations."
"While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur."
I am projecting that September will be a seminal month for the markets this year - fasten seatbelts! https://wallstreetonparade.com/2023/08/the-fitch-downgrade-of-u-s-debt-what-you-need-to-know/
Have a great weekend and forget all about it - the sun always comes up in the morning and a new day always offers more bids and asks!
Thanks, if what you (we) fear actually happens to 10y yields, we have to factor in that no-one has seen “normal” monetary conditions for nearly 30 years - my ‘abnormal’ clock started in 1997. That’s an entire generation raised on cheaper-than-normal money, sometimes free money. Don’t wonder if lots of people can’t understand what’s happening - including many policy makers. Which of course means we should be conscious of the possibility of a sudden “panicky pivot”.
...a sudden “panicky pivot”. - so well put my friend - F**king 'A' - Copy that!
Totally agree, one of the themes I have read consistently is that the yield curve never resteepens because long rates rise, rather it is always because the short end falls when the Fed cuts. however, given all the new features of the current economy, I have definitely become of the opinion that the 2yr at 5% and the 10yr at 5.5% - 6.0% is well within reason. My take is risk assets may not like that very much, but I could be wrong. Love your work, thanks
Thank you Andy. As a 'bond guy' I always fear risk assets - and so have missed some of the massive multi-decade bonanza (courtesy of central bank policy, and latterly government policy). But nothing comes for free, even if it takes multi-decades for the bill to land.