Pro Perspectives 10/13/22

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October 13, 2022
 
The September inflation came in hotter this morning (more in a moment).
 
Stocks went down.  Yields went up. 
 
Then it all reversed. 
 
Once again, the 4% area in the 10-year yield, the benchmark of the  government bond market, seems to be the line in the sand. 
 
As we’ve discussed often in my daily notes, this liftoff phase of global interest rates, where central banks have been exiting emergency policies, has been led by the Fed.  And a rise in U.S. rates, moves the anchor for global interest rate.
 
With that, as the U.S. 10-year yield hit 4% in late September, it dragged higher government bond yields, and it resulted in a shock in the UK government bond market, which required intervention from the Bank of England. 
 
So, here we are heading into today’s big inflation report, with the 10-year around 4%. 
 
Again, the inflation data for September was hotter than expected, and the 10-year yield had a quick visit to 4% and reversed. 
 
Stocks reversed as well, and that turned into another historic moment for the stock market.  
 
Remember, last week, we saw one of the biggest two-day gains in stocks.  And we looked at this chart …
Looking back through all of the two-day returns in the S&P 500 futures, dating back to 2006, a two-day return of over 5% is rare, and every time since 2006, it has been fueled by policymaker intervention, to respond to a significant risk to, or destabilization of, the global financial system.  These were all significant moments in the history of markets.   
 
As such, the big 5%+ bounce in stocks last week was (also) intervention-driven, as the Bank of England intervened in the UK bond market to stabilize the UK financial system.  Again, given the comparables in history, we can draw the conclusion that this UK bond market event was a very significant threat to the global financial system.    
 
Now, let’s fast forward to today, and again we have another rare occurrence.  The S&P futures plunged 2.6% after the inflation data, and then surged to close up over 2% for the day.  It was on a 5.4% trading range.
 
I went through 25 years of S&P futures data that have this magnitude of trading range, or greater in common.  And like the two-day return study, these extraordinarily large trading range days (finishing up or down) also come associated with very significant moments. 
 
As you can see in the chart above, these ranges are associated with major market crises, policymaker intervention, policy change (via elections/votes) and market liquidity crises. 
 
The past two, however, have come as the result of an inflation report (and have come in consecutive months)!
 
What do we make of it?
 
Remember, high inflation environments, historically, have only been resolved when short term rates (the rates the Fed sets) are raised above the rate of inflation.  The Fed remains well below the rate of inflation.
 
Why?  As we’ve discussed along the way of this Fed tightening path, even if the U.S. economy (including our government’s ability to service its debt) could withstand the pain of high interest rates, the rest of the world can’t.  And we’re already seeing, at current interest rate levels, that the global financial system can’t withstand it.
 
That’s why this 4% level in the 10-year yield seems be a vulnerable point.  And that’s why this inflation report, has become the equivalent of a major market moment in recent history.
 
The good news, as we discussed yesterday, some of the hot spots in the inflation report, are cooling (new cars and rents), though it didn’t show in today’s report. 
 
If fact, even if prices continued to move at the pace of the past three months (the three-month average monthly headline inflation) we’re looking at an inflation rate that is running around 2% annualized — which is the Fed’s inflation target.
 
And if that’s the case, we could be looking at a collapse in inflation by next year, as most of the effect of the 300 basis points of tightening has yet to be felt in the economy (still lagging).  
 
So, how would 2% inflation be possible (much less lower), if the Fed Funds rate is still (at the moment) well below the 8.2% current annual inflation rate that we see in the media reports (which measures prices now against prices of a year ago)? 
 
Arguably, the Fed has done its job, slowing the economy and lowering inflation (which is showing up in the monthly inflation change). They’ve done it by destroying confidence and destroying stock market wealth.  And that’s been accomplished mostly through tough talk.
 
Why is that good news?  Perhaps the pain has already been inflicted, on the stock market and the bond market.     
 

Pro Perspectives 10/12/22

October 12, 2022

The September inflation report comes tomorrow morning.

Let’s take a look at what stocks have done since the last inflation report.

Chart Description automatically generated

It’s been straight down.  The report itself sent stocks into a 4.8% slide (peak to trough) for the day, on September 13.

This was all on the view that it would force the Fed to do more (more rate hikes).   Indeed, they’ve certainly threatened to.

So what was so bad about the last inflation report?

First, the headline number (this was data from the month of August) was up just 0.1% compared to the prior month.  At that monthly pace, inflation would be running just a bit over 1% annualized.  That’s very, very tame inflation.

But it was the uptick in the inflation number excluding the effects of food and energy that spooked markets.  That ticked up from 5.9% to 6.3%, year-over-year.

It was shelter that accounted for about 40 percent of that increase.

Other drivers of that increase in the core inflation number:  healthcare costs, new vehicles, used cars and trucks, and household furnishings.

Let’s take a look at what we know about those components, for clues on what tomorrow’s number might look like.

If we look at the recent data released by Kelly Blue Book on new car prices in September:  It was the first decline in five months.

What about used cars?  The Manheim used car index showed a 3% decline in used car prices in September compared to August.

For healthcare, the U.S. Health Care Price Index (which measures cash price paid for healthcare) declined in September.

Remember, shelter was the hottest component in the last report.  What did shelter prices do last month?  Realtor.com says median home prices peaked in June.  And the Apartment List National Rent Report says the national month-over-month rents were down by 0.2% (chart below).

 

Chart, histogram Description automatically generated

Rent has been a key contributor to overall inflation.  Both CNBC and Bloomberg are running headlines today, calling for a hot number tomorrow, driven by rents.  We’ll see tomorrow if the fastest growing rental market place in the United States has a better handle on rents than Wall Street media.

Add to all of this, gas prices were down 7% last month, for the third consecutive month.

Pro Perspectives 10/11/22

October 11, 2022

The U.S. bond market was closed yesterday.  And yet we entered today with a spike back to the dangerous 4% level in the 10-year yield.

It was just two weeks ago that the combination of the global benchmark for interest rates (U.S. 10-year Treasuries) at 4% and the global benchmark for stocks (the S&P 500) back at the lows of the year, was creating stress in the global financial system.  It looked like a breaking point.

And it was.  The next morning, the Bank of England (BOE) was forced to rescue failing UK pension funds.

As Warren Buffett has said, “only when the tide goes out, do you discover who’s been swimming naked.”  The “tide” in this case, is the easy money, low inflation era.

With higher rates, UK pension funds have been exposed as overleveraged and dangerous to the UK government bond market.  As the value of UK government bonds (gilts) were falling (rates rising), these funds were getting margin calls, where they were forced to sell bonds.  The forced selling, resulted in lower bond values, which resulted in more margin calls, which resulted in more bond selling (and a self-reinforcing global sovereign debt spiral was underway).

It has now been revealed that these massive pension funds were just hours from insolvency, which would have quickly spilled over into the UK financial system, which would have quickly become a problem for the global financial system, and global sovereign debt markets.

With that, we close the day today with a very important comment from the head of the Bank of England.

There has been speculation that the BOE will continue to absorb the stress in the pension funds, and where ever else it might emanate in the financial system – for as long as it takes.

But the BOE Governor rejected that today, warning the pension funds that they have three days to fix themselves, using the liquidity provided by the BOE.

This comment sent U.S. markets back to the worst levels of the day, and back around the danger levels of two weeks ago.

This comes as the Fed continues to march officials out in front of the media with hawkish rhetoric.

And this comes just two days ahead of the very important U.S. CPI number.

So, the current level of global market interest rates are already proving to create stress in the global financial system.  Meanwhile central banks (led by the Fed) continue to talk about responding to hot inflation data, with even higher rates.

What if the inflation data on Thursday is hot?

Keep this in mind:  The Bank of England (and the Fed) are responsible for maintaining stability in the financial system.

The BOE is talking to UK pension funds as if they are in a position of strength.

They are, right now, the “buyer of last resort,” in the UK bond market.  They are in a position of weakness.  And we’ve already seen what that looks like.  They’ve been forced to come off of the sidelines, and return to the business of emergency policies (QE).

As the old adage goes, if you own the bank $100, you have a problem.  If you owe the bank $100 million, the bank has a problem.

Pro Perspectives 10/7/22

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October 7, 2022
 
As we discussed yesterday, the Fed has been verbally attacking demand. And the mechanism they are targeting to bring demand down, as they've explicitly stated, is jobs.
 
With that, the September jobs report came in this morning.
 
Unemployment ticked down.  The Fed wants unemployment up. 
 
So the Fed's rate path and jawboning (about the rate path) didn't raise the number of unemployed.  And that leaves the gap between job openings and potential workers at 1.7 to one.  The Fed's alleged target is one to one.
 
But as we also discussed yesterday, the objective of the Fed, in targeting jobs, is to reduce the leverage workers have in negotiating higher wages. 
 
On that note, wage growth in this mornings report came in tame, for the second consecutive month.  At a 0.3% monthly change, that's 3.7% annualized wage growth.   That's just a touch above the monthly annualized wage growth for the nine-month period prior to the pandemic.
 
Meanwhile, with headline inflation running over 8%, employees are experiencing negative real wage growth (losing 5% in buying power over the past twelve months).  
 
Of course, that's against a broad basket of goods (CPI).  But if we look at the basics of food, shelter and energy.  It's double-digit losses in buying power.  This equates to a lower standard of living. 
 
Now, is the Fed trying to suppress wages because they think prices will eventually fall, closing the gap between the change in the level of wages over the past two years, and the change in the level of prices (i.e. restoring the standard of living)?
 
No.  An IMF report, published two days ago, lays out the policymaker rational for pinning wages down. 
 
It says, "real wages (after the effect of inflation) tend to go down initially as inflation outstrips wage growth."  That limits the ability of consumers to maintain the level of demand.  They can't afford to pay up for goods.  With that, businesses do worse, and are less likely to hire and give raises.  That process, they think, stops a self-reinforcing upward spiral in prices, where wages feed into higher prices, which feed into higher wages …    
 
But it only works, according to the IMF report, if businesses and consumers expect future inflation to be tame.  On that note, the Fed has talked down the stock market, and has continuously threatened to crush jobs and threatened a "whatever it takes" type of approach to crushing inflation — for the primary intent of managing down this chart …
As you can see, it has worked. Inflation expectations are 15 basis points lower today, from the September Fed meeting.  And lower than the levels of the July Fed meeting, when the Fed signaled a pause in tightening cycle.
 
So, again, the Fed's tough talk has worked.
 
But remember, bringing down the rate-of-change in prices, is different than bringing down the level of prices.  
 
The level of prices, thanks to this chart, is here to stay…   
Wages will ultimately go higher, but the closing of the wage-price gap will be slow and painful. 
 

Pro Perspectives 10/6/22

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October 6, 2022
 
Back in March, when the Fed made its first rate hike, Jerome Powell launched a verbal attack on demand.
 
In his press conference, he was asked what mechanisms he would use to reduce demand? 
 
He said this:  "If you look at today's labor market, what you have is 1.7-plus job openings for every unemployed person.  So that's a very, very tight labor market — tight to an unhealthy level…. We're trying to better align demand and supply, let's just say in the labor market.  So, if you were just moving down the number of job openings so that they were more like one to one, you would have less upward pressure on wages [and] you would have a lot less of a labor shortage" … "and that, over time, should bring inflation down."
 
So the case the Fed has made for attacking jobs, has been to reduce the leverage that workers have in commanding higher wages.  Higher wages are inflationary (but also a requirement to maintain a standard of living in a world where the level of prices has been reset higher). 
 
This is the chart of the jobs opening data Powell was referencing.  
Against about 6 million people unemployed, the job openings peaked in April at nearly 12 million openings.  That's two jobs for every one unemployed worker, and the Fed has been using that data point throughout the five months to justify tough talk about the rate path.
 
But as we know, the rate path already has created a shock to the global financial system:  enough to bring two major central banks off of the sidelines and back into the game of emergency policies (i.e. both the Bank of England and the European Central Bank: backstopping sovereign bond markets).
 
This destabilization in the financial system creates a conundrum for a Fed that's threatening bigger and bolder rate moves, as the job gap they've been touting, as their objective, has shown little signs of change.  
 
On Monday, they were thrown a life-line.  The August report on job openings, from the U.S. Bureau of Labor Statistics, magically collapsed by 1.1 million jobs.  Over a million jobs vanished in a month. 
 
To put that in perspective, that was the biggest change on record (by far), only slightly behind the April 2020 collapse in job openings (when the economy was practically shut down).  
 
That brings the job openings to workers ratio down to about 1.6 to 1.
 
And as you can see in the next chart, wage growth is tame, within the range of pre-pandemic, and running around 3.6% annualized in August (monthly change).  
We get the September jobs report tomorrow.  The Fed needs the cover of an uptick in unemployment, and soft wages. 

Pro Perspectives 10/5/22

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October 5, 2022
 
Yesterday, we discussed the big two-day move in stocks.  And we looked at this chart …
As you can see in the chart, a two-day return of over 5% is rare, and every time since 2006, it has been fueled by policymaker intervention, to respond to a significant risk to, or destabilization of, the global financial system.  
 
Today, let's step through the history in this chart, and talk about the event, the response, and the outcome. 
 
Most recently (the far right of the chart), as we know the Bank of England stepped in last week to buy UK government bonds.  That reversed the aggressive rise in UK market interest rates, which were beginning to reveal an impending shock to the UK financial system, which (if history is our guide) would become contagious, globally. 
 
What was revealed?  Fourteen years of global QE and zero rates has left the global financial system unable to sustain higher interest rates and shrinking liquidity. 
 
Evidence: As rates were rising in the UK last week, UK pension funds were getting margin calls, where they were forced to sell UK government bonds.  When they sold bonds, yields went higher, which forced more margin calls, which required them to sell more bonds (and a self-reinforcing global sovereign debt spiral was underway).
 
The pain point on policy tightening was revealed to global central bankers.  The Bank of England responded, buying bonds, and reversing the rising tide of interest rates.  Markets calmed.  Global stocks rallied.
 
This move in stocks was the biggest two-day move since 2020. 
 
Of course, this was driven by both fiscal and monetary policy intervention.  The early April spike on the chart came with the rollout of the Payroll Protection Program (backstopping business and jobs).   And the big spike in March of 2020, came as the Fed finally resolved a crisis in the bond market (a threat to the entire financial system) by vowing to outright buy corporate bonds and bond ETFs. 
 
That was the covid-lockdown driven bottom for stocks.  The stock market went on to double, over the next 18 months, following that intervention. 
 
Continuing to move left on the chart …
 
In December 2018, by Christmas the stock market was on pace to have the worst decline since the Great Depression.  The Fed had hiked rates three times that year, into a slow economy.  They had systematically hiked seven times since the 2016 election.  And it was when the 10-year yield surged through 3%, that stocks began a calamitous fall (falling 18% over 23 calendar days).  Here's a look at the chart on yields (notice where we are now, in relation)…
Stocks were signaling fear in the markets that the Fed had already gone too far (i.e. was choking-off economic momentum).  The Fed ignored the signals and mechanically raised rates again at their December meeting.
 
The bottom fell out in stocks.  By December 26th, the S&P 500 was down 18% for the month of December.   That led to a response from the U.S. Treasury (i.e. intervention).  Mnuchin (Treasury Secretary) called out to major banks and the President's Working Group on Financial Markets (which includes the Fed) to "coordinate efforts to assure normal market operations." 

That was the turning point.  That put a bottom in stocks. 

Within days of that, the three most powerful central bankers of the past ten years (Bernanke, Yellen and Powell) were backtracking on the Fed's rate path — signaling a pause.  Stocks rose 47% over the next 15 months. 
 
Let's continue moving left on my S&P returns chart above …
 
In 2015, once again, it was the Fed. By mid August, China's stock market had boomed and crashed, all in 2015.  The Chinese economy was slowing and in August they surprised the world with a currency devaluation. 
 
Meanwhile, the Fed had ended QE a little less than a year earlier, and the Fed had well telegraphed its first post-Great Financial Crisis rate hike for the following month (September), however there was plenty of global angst surrounding the removal of liquidity by the Fed.
 
In August, U.S. stocks crashed 13% in six days (including a 7% flash crash). 
 
The Fed responded two days later (August 26).  The New York Fed governor spoke at Jackson Hole and cited the market turbulence for marking a September rate hike unlikely.  From the lows that day, stocks bounced 9% in fifteen days, and ultimately 14% from those lows.
 
If we continue moving left on the S&P returns chart (above) we see the other rare 5%+ two-day moves in the S&P futures. 
 
They come (far left on the chart) surrounding massive monetary and fiscal policy intervention to avert disaster from the Lehman failure/Global Financial Crisis.
 
It was the Fed launching QE, and G20 global central banks vowing to coordinate policy, that solidified the bottom for stocks (in March of 2009).
 
With all of the above in mind, as we've discussed this week, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment). 
 
We can see it in the examples above.  And based on this history, it's fair to say that we are at a significant moment, seeing significant vulnerabilities in the financial system (driven by rising rates), and we've seen a significant response (by the Bank of England).
 
Will there be more intervention?  Maybe.  But we know that interest rate markets have reached the "uncle point," and central banks are on high alert, and will do whatever it takes to preserve financial stability. And these moments are, historically, turning points for markets.
 
Best, 
Bryan  
 
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Pro Perspectives 10/4/22

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October 4, 2022
 
As we discussed yesterday, if we look back through history, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment).
 
We had intervention last week.  The Bank of England stepped in to calm the global interest rate markets, by intervening in the UK sovereign debt market.
 
That reversed the tide of rising global market interest rates, which were threatening global financial stability.
 
Adding to that, the Reserve Bank of Australia balked overnight and raised rates just 25 basis points (vs. an expected 50 bps).  That was another signal to markets, that central banks are acknowledging that rising rates (albeit at low levels, relative to inflation) have created a threat to the global financial system.
 
With the release of that (rate) pressure valve, U.S. stocks (the proxy for global economic health, stability and risk) had the biggest two-day return since 2020. In fact, it was a two-day return for the record books. 
 
Let’s take a look …
 
S&P futures were up 5.8% the past two days. 
 
With that, I've gone through all of the two-day returns on the S&P 500 futures, dating back to 2006, and as you can see in the chart above, a two-day return of this magnitude is rare, and it comes, every time, at significant moments (vulnerabilities), and fueled by a significant intervention. 
 
PS:  If you aren't a member already, I want to invite you to join us in my premium subscription service, The Billionaire's Portfolio. 
 
We just made a new addition to the portfolio yesterday.  Now is the perfect time to get on board. 
 
It's the highest conviction position in the portfolio of one of the best biotech investors in the world. And also involved in the stock, is the best activist investor in the world.  Both are very influential billionaire investors, with large stakes in the company, and are already pushing company leadership to unlock value in the stock.  Wall Street has a high 12-month price target on the stock more than 60% higher than current levels. 
 
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Best,
Bryan   

Pro Perspectives 10/3/22

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October 3, 2022
 
If you're a hedge fund, or trader, and you're leveraged 10, 20, 50, 100 times, avoiding corrections or trend changes is critical to your survival.
 
Getting it wrong, can mean your portfolio blows up and maybe goes to zero. That's the mentality the media is speaking to, and frankly much of Wall Street, when addressing any market decline.
 
The bottom line: 99.9% of investors aren’t leveraged and shouldn't be overly concerned with U.S. stock market declines, other than saying to themselves: “Do I have cash I can put to work at these cheaper prices? And, where should I put that cash to work?”
 
So, for the average investor, dips are an opportunity to buy stocks at a discount.
 

On that note, Warren Buffett has made a career out of "being greedy, while others are fearful."

 
And there is certainly a lot of fear in the air.  
 
With that, Buffett's successor, Greg Abel, was in buying Berkshire Hathaway shares last Thursday.  He bought 168 shares, at an average price of around $406,000 a share.  That's over $68 million worth of stock.
 
Based on Forbes' estimate of Abel's wealth, that's about 15% of his net worth. 
 
This purchase came the day after the Bank of England intervened to calm the UK bond market.
 
If we look back through history, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment).
 
For the vulnerable government bond market, the action taken by the BOE has done the trick, thus far.
 
Yields on 10-year UK gilts are down 65 basis points from Wednesday's high, back under 4%.  
 
U.S. yields are down 38 basis points.  And here's a look at what has been the most imminently dangerous major global government bond market, Italian yields (down 73 basis points from Wednesday's high) … 
This calming in the global sovereign debt markets has translated into higher stocks.  Today we get another very strong reversal in stocks, after making new lows on the year (and another technical reversal signal signal, this time in S&P 500 futures, Dow futures and Nasdaq futures).
 
That said, let's get back to the overhang of "fear" in markets…
 
There were rumors going around all weekend that a major global bank was on the verge of failing.  It's Credit Suisse.  And the CEO wrote a memo to staff on Friday, assuring the liquidity and strong capital base of the bank — although they are restructuring.  Still, the market has been placing bets on its failure, and another "Lehman moment" for the world — where the failure of a major global trading bank can quickly result in a freeze of global credit.
 
Keep in mind, the effects of the global financial crisis have left a bias in market participants.  They see crashes everywhere.  And they have for the past fourteen years. 
 
And while the fundamentals may justify the view, at times, there is a big difference between now (into perpetuity) and 2008. 
 
The difference:  There is no question what central banks can and will do. 
 
To avert disaster in the global financial crisis, they ripped up the rule books.  There are no longer rules of engagement for central banks.  They will do "whatever it takes" to maintain financial stability, and to manufacture their desired outcome.  This comes with one very important condition:  The "no rules" era of central banking requires coordination of the major global central banks.  And they are coordinating. 

 

Pro Perspectives 9/30/22

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September 30, 2022
 
As we end the third quarter, let's take a look at year-to-date major asset class performance. 
 
Stocks are down 24% (S&P 500).
 
Government bonds are down 14% (the 10-year U.S. Treasury note).
 
Corporate bonds are down 18% (Bloomberg Baa Index)  
 
Real Estate is up 8.5% (existing home median sales price).
 
Commodities are up 4% (S&P GSCI equal weighted index).
 
Cash is up just less than 1% (money market fund).
 
After adjusted for inflation, it's all negative (exception real estate, which is flattish).
 
The performance in asset prices has less to do with whether or not the economy can withstand a 3% interest rate, and more to do with a Fed that has explicitly and continually (over the past six months) threatened to destroy demand, and jobs.  
 
With that, the Fed has manufactured the desired slowdown in economic activity (again, with just a 3% interest rate, which is still below the long-term average). 
 
The first two quarters have already been booked as negative GDP growth.  So the recession is not questionable.  It is here.
 
And we now have the valuation on stocks at 15 times next year's earnings (less than the long-term average P/E on the S&P 500, of 16x).  That's on earnings growth expectations that have been dialed down to 3%.  That would be negative real earnings growth (after the effect of inflation).  
 
So the Fed has manufactured a recession, without taking rates above the rate of inflation (not even close).  They've killed the wealth effect of rising asset prices.  And they've cut the valuation on stocks from very overvalued to slightly undervalued (relative to long-term historical valuation).   
 
And this week, the Fed has pushed the limits to the point of destabilizing the financial system (given the events in the UK this past week). With midterm elections six weeks away, this seems like a time for the Fed to step back.     
 

Pro Perspectives 9/29/22

 

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September 29, 2022

Just in case we thought the Bank of England’s intervention yesterday in their government bond market, signaled a course correction for the Fed, we were disabused of that thought this morning.  

The Fed lined up three speakers today, all affirming the draconian rate outlook (hawkish).  And they put two on the calendar for tomorrow, which undoubtedly will have the same message.  Moreover, the European Central Bank is following the same playbook, having lined up media for numerous ECB governing council members to promote the narrative of steadfast loyalty to the inflation fight (i.e. telling us that tough rate hikes will persist).  

Meanwhile, they all support the Bank of England’s flip-flop on bond buying yesterday (a monetary “easing” tool that is a counterforce to the Bank of England’s own interest rate hikes).  And of course, as we know, the European Central Bank did a similar flip-flop over the summer.  They are outright buying government bonds of vulnerable euro zone countries, while also raising interest rates.    

How does this make sense?  

As we know, since the Great Financial Crisis, the major global central banks have done nearly everything in coordination.  They continue to coordinate.  In fact, Jerome Powell subtly said in his last press conference, that he had just returned from Basel, Switzerland, where he was meeting with other central banks.  

It seems that they are focused, in coordination, on crushing inflation expectations, and therefore demand. Meanwhile, as their policies destabilize the financial system, they unapologetically intervene to absorb the shock.  

That brings us back to an image from one of my April notes, as we were discussing the plans of the central banks to exit QE.   

The problem:  we’ve yet to see an example of a successful exit of QE.  

Here we are again.  The attempted exits have only led to more control and more intervention by central banks over markets – to plug new leaks in the global economic system. 

The question now is, have the central banks lost credibility, and will the markets, this time, test them (i.e. continue to put pressure on currency and government bond markets)?  

We seem to be at that point.   

That said, when the biggest most powerful central banks in the world are coordinating (the Fed, ECB, BOJ, BOE, SNB, BOC), they can’t be beat.  In their own words, they will “do whatever it takes” to maintain stability in the financial system. They will keep plugging holes, in coordination.  

So what’s the end game?   

As we’ve discussed often here in my daily notes, this all continues to progress toward an eventuality of a  coordinated reset of global debt, and a new monetary system.