Bill Blain: “I Have A Feeling The Much Anticipated October Crash Is Just Not Going To Happen”

Thursday, July 13, 2017
By Paul Martin

By Bill Blain of Mint Partners
ZeroHedge.com
Jul 13, 2017

Blain’s Morning Porridge, July 13

“Never mind manoeuvers, always go at them.”

Methinks we worry too much.

Canada hiked interest rates for first time since 2010 yesterday. The Loonies (Canadians, and not a term meaning they are moon-struck idiots, but a reference to their dollar coin) tend to track the US quite closely – the BoC follows the Fed. The next phase will be the sequential follow on by the rest of the globe’s central banks as they each step in line. The last few weeks confirm global central bank policy in now on a hawkish tack – it’s about ending extraordinary monetary experimentation, normalisation and higher rates. So bond prices have fallen and yields are higher. Get over it.

There are still many flies in the ointment – most notably wage inflation just ain’t apparent – but its happening. The only questions are when and how fast.

Bear in mind: Janet Yellen’s testimony yesterday confirms the Fed’s pace of interest rates rises will be: “Lower for Longer”!

What does all this mean in terms of the right investment stance? I think the word to use is Soft. For once, there may be less to panic about than we think. (On the other hand, check out this morning’s attachment..)

When explaining why markets move, I often think they are a bit like sailing. When the wind starts to blow its time to take in the sails by hiking interest rates. When it’s calm and flat, its time to put up bigger sails (cut rates) and even put the engine on (QE). When Yellen uses words like “slight to moderate” she wasn’t talking about the sea-state.. but painting a picture of sluggish growth that’s too weak to justify a hike or other shocks. To keep the ship moving its time to keep the sails full, but keep a weather eye on what the wind does next. As soon as the wage numbers justify it, or growth strengthens, maybe a modest hike to reduce sail and keep them under control.

After yesterday’s testimony the US dollar slid, bond yields fell as stocks rose – exactly what we’d expect, while the Loonie went up reflecting the Canadian hike. It was pure Economics and Markets 101.

Not everyone believes it. I’m hearing a number of big names looking at the calm quickly turning into something less pleasant, and bonds become more volatile. A number of blogs talk about a large Treasury straddle put on for July 21st – a bet the 10-yr US bonds moves up or down significantly! Interesting. Might happen. Thin markets and such, but does it mean end of world? (I suspect someone playing a political game on Trump’s current embarrassments rather than fundamentals.) Relax. Breathe deep. Surprised as I am to say it, markets are calmer than many think.

The Rest…HERE

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