Loading ...Equities at record prices garner all the attention. Yet the manic behavior in global bond markets is more extraordinary and consequential. U.S. fixed income ETFs attracted another $7.3bn this week (ETF.com), as “money” keeps rolling in. The $64 TN question is how much speculative leverage continues to accumulate throughout global bond and derivatives markets. Here again, the timing of the coronavirus outbreak is of great consequence – inciting speculative excess and attendant leverage when global fixed-income was already engulfed by powerful Inflationary Biases. Added leveraging works to inject additional liquidity into already over-liquefied global markets. And the last thing overheated global risk markets – with such powerful Inflationary Biases – needed at this point was additional liquidity.
I view the equities Bubble as an offshoot of the greater Bubble that continues to inflate in global debt, securities Credit and derivatives markets. On the one hand, it is extraordinary to see equities markets essentially dismiss such consequential developments in China. It does, however, present important support for the Bubble Thesis. Equities rallied to record highs just months before the LTCM/Russia collapse in 1998. Stocks rallied to record highs in 2007 even as the mortgage finance Bubble faltered.
It’s only fitting that global stocks rally to record highs as the faltering China Bubble places the global Bubble in serious jeopardy. If the coronavirus stabilizes over the coming weeks and months, attention can then shift to November U.S. elections. It’s poised to be One Extraordinary Year.
A Friday CNBC headline: “White House Considering Tax Incentive for More Americans to Buy Stocks, Sources Say.” A strong equities market boosts optimism for a Trump reelection – bullishness that spurs further stock gains. Yet there is potential for self-reinforcing dynamics to the downside. A break in stock prices would incite election nervousness and heightened market risk aversion. Can this game sustain for another nine months?