On a day where stocks are soaring and almost everything else on the board is trading on the upside, it appears the central bank put is now in trouble and this will have serious ramifications in 2018.
Central Bank Put Is In Trouble
By Peter Boockvar, author of the Boock Report
February 12 (King World News) – Here is what Peter Boockvar wrote as the world awaits the next round of monetary madness: While stocks are getting a respite as it bounced like magic off its 200 day moving average on Friday and now is working off its oversold condition, there is no bounce to bonds at all. The 10 yr yield at 2.88% is sitting at what would be a closing multi year high…
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Boockvar continues: Yields rose in Asia, are doing the same in Europe and spilling over to the US. There is also the growing realization of a blowing out of US government finances and the need to issue twice as much paper in 2018 relative to 2017 to pay for it at the same time foreigners are buying less (weak dollar doesn’t help) as is the Fed. The infrastructure proposal from the White House highlights this further. The key numbers for bonds this week will be CPI on Wednesday and PPI on Thursday.
Last week we heard from Bill Dudley who said the stock market selloff was “small potatoes” as he addressed the questions of how the Fed thinks about a pick up in market volatility. We also heard from Dallas Fed President Kaplan who basically said he welcomed a two way market and “maybe addressing some of the excesses and imbalances in the markets, by having a little more volatility, may be a healthy thing.”
Over the weekend in Europe, ECB member Ewald Nowotny echoed similar thoughts by saying that the drop in stocks is “a normalization, a reasonable wake up signal to show that stock markets can’t just keep rising all the time…the task of central banks isn’t to satisfy markets but to ensure overall economic stability. So if necessary, interest rates will have to rise and markets will adapt to that.“
Bottom line, the strike price of the central bank put is way out of the money right now.
***KWN has now released the timely KWN audio interview with Dr. Stephen Leeb and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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