Loading ...I just believe almost everyone is too optimistic – drowning in central bank liquidity complacency. China is confronting an unprecedented predicament, while concurrently facing acute financial and economic fragilities associated with a faltering Bubble.
Safe haven bonds and commodities have this right. Risk markets are simply playing a different game – an especially dangerous one at that. The Fed’s dual 2019 “U-turns” have profoundly changed risk market perceptions and behavior. Rates were cut, and liquidity was injected despite loose financial conditions, speculative markets and record stock prices. Understandably, risk market participants have been emboldened to believe the Fed and global central bankers have minimal tolerance for market instability.
To argue that the Fed’s $400 billion balance sheet expansion is neither QE nor culpable for surging stock prices completely misses the point. The Fed’s operations solidified the view that securities prices are the priority – even more so than the real economy. This fundamentally altered perceptions of market risk and, accordingly, price dynamics throughout equities, corporate Credit and derivatives.