We won’t know all the crazy leverage and derivative strategies spawned during this period until the next big de-risking/deleveraging period
TSP & Vanguard Smart Investor Posts
The New York Fed has now pumped out upwards of $3 trillion in a period of 63 days to unnamed trading houses on Wall Street to ease a liquidity crisis that has yet to be credibly explained.
What’s the battle of the TSP I fund about and mean to our investments?
From a conventional “financial stability” standpoint, this Credit cycle may appear virtually pristine. Yet Credit Bubbles survive only with unrelenting debt growth. Today’s mirage of “financial stability” depends on ongoing massive federal deficits coupled with aggressive monetary stimulus.
A financial smoke detector went off in the last month (I’m sure your financial adviser told you about it, right). The financial media provided many excuses like “who knew corporations would have to pay taxes like they do every year at this time surprising the bankers” (never mind they have the lowest tax rates ever).
First time all four developed countries have been negative year-over-year since last two global recessions.
It was no coincidence that U.S. “repo” market tumult followed on the heels of an abrupt reversal in global bond yields. I appreciate how the enormous global buildup in leveraged speculation works miraculously so long as bond yields are declining (bond prices rising). If only bond yields could fall forever – even as debt and deficits expand uncontrollably. It’s not clear to me how the global system doesn’t turn increasingly unstable, which I believe explains why the ECB and now the Fed have resorted again to QE.
This was the second strongest (22-week) monetary expansion in U.S. history, trailing only 2011’s “QE2” period…
Today the SP500 (TSP C fund) is below its August 2018 high and the TSP S fund is 10% below its August 2018 high – distribution, distribution, distribution. Market tops take time. Secular market tops aided by central banks take longer.
This year we are seeing more underlying turmoil in the global financial markets. The Fed and media talking heads are telling us the markets need more financial reserves ignoring the trillions that are supposedly in them already. No, I think Doug Noland has it right – “The issue is not a shortage of reserves but a gross excess of speculative leverage.”
Tread careful this Fall. Sometimes those Autumn fires get out of control.