With the Dow trading lower along with oil and gold, today a legend in the business sent King World News a powerful piece warning that central banks in the West are now on the verge of losing control.
From Art Cashin's notes: Another Pair Of Eyes – As I was getting ready to "wrap" these Comments, a note from my friend Peter Boockvar, over at the Lindsey Group, came across my desk. Here's a bit of Peter's observations:
I’ve said this before but I’m sorry, I need to say it again. What we are witnessing in global markets is the inherent contradiction writ large that is modern day monetary policy where dangerously ZIRP, NIRP and QE are considered conventional policies. The contradiction is simply this: the desire for higher inflation if fulfilled will result in higher interest rates that central banks are trying so hard and desperately to suppress.
Outside of the short end of the curve, markets will always win for better or worse and that is clearly evident now. The ECB is getting their first taste of the market talking back and in quite the violent way. In the US, the bond market is watching the Fed drag its feet (its never-ending) with wanting to raise interest rates and finally said enough is enough. The US Treasury market is tightening for them. Since mid April, the 5 yr note yield is higher by 40 bps, the 10 yr is up by 55 bps and the 30 yr yield is up by 65 bps.
The Fed now has two choices, raise rates in June or July and get back some control or don’t and lose it further. Bigger picture, IF the rise in rates continues around the world in coming quarters and it starts to impact global growth, central banks will then reach its next decision, whether to fight the rise with more QE or to just let markets normalize on their own. For US equities, I don’t think they should be so nonchalant with what is going on in bonds as extremely low interest rates have been their best friend over the years.
We can't forget that bonds are not just bonds any more. They are also ETFs and other not so liquid products. Keep your seatbelt fastened.
A Very Pleasant Visit – Monday afternoon, my long-time friend, John Mauldin, arrived at the NYSE to ring the closing bell. Actually, John is on the board of Ashford, an NYSE listed company and technically it was the company that rang the bell, led by the Chairman, Monty Bennett with John and the other directors on the podium surrounding him.
Soon after the bell rang, John and the other directors headed over to Bobby Vans to marinate some ice cubes and later have dinner. John, naturally brought Monty and several other directors over to the Friends of Fermentation corner to exchange views of the world and other things of note.
I don't know about the Ashford team but the FoF came away more enlightened – and entertained.
Consensus – Bond volatility is not likely to disappear so things may stay bumpy right through tomorrow's payroll numbers. As I said in yesterday's consensus, keep your eye on bond yields.
***ALSO JUST RELEASED: Richard Russell – The Most Surprising And Dangerous Bubble In The World And 2 Key Markets That Are On Fire! CLICK HERE.
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