Savvy Trades and Investments

[michael t]

re: historical precedents of markets

Are historical precedents relevant to our future when there has been no historical period that has involved the unprecedented stimulus and manipulation of both bond and stock markets by central banks?

Central banks have accumulated a significant portion of global debt which has led to an artificial rate environment. Thier accumulation of debt has forced capital into stocks.

The attempt to unwind those balance sheets is on the horizon, and that is why I believe the markets are showing cracks. The US began tapering its balance sheet last fall. The ECB is expected to end it balance sheet expansion in the fall of 2018, and Japan has quietly ended its monetary easing policy.

Their are many experts waiting for an inverted yield curve as a signal of a recession. Can we rely on that signal in an artificial rate environment?

Longer term interest rates have been manipulated by central banks expanding their balance sheets. We are about to enter a period where the unwinding of their balance sheets will likely have the opposite impact. If QE created artificially lower rates then the unwinding of such should lead to artificially higher rates. Is it possible that inverted yield curve signal will be distorted by the unwinding of QE?

My position, precedent my not be relevant in this unprecedented environment.