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Monday, February 26, 2024 8:01:12 AM
Matthew Piepenburg, partner at Matterhorn Asset Management: It’s almost comical to watch policy makers of all stripes and country codes caught in a corner yet pretending we don’t notice.
Children In Charge
I’m reminded of the kid with his hand in the cookie jar while pretending his parents can’t see him—denying his guilt despite the crumbs falling from his face.
Again: It’s almost comical.
But there’s really nothing funny at all about major economies crawling into recession (Germany, Japan, UK, China) or denying recession (USA) while our mental midgets from DC to the EU play with bonds, inflation currency and war like kindergarteners with gas and matches.
Can’t Hide the Debt Cookie Crumbs
Speaking of kids caught with crumbs on their face while denying responsibility, it seems that even our central bankers can’t keep hiding the facts of now “unsustainable debt” (Powell) with clever lies, such as they had tried to do in the past:
In short, the days of hiding bad math behind empty words are now coming to an end, as most recently evidenced by another comical treasury market auction (below).
Keep It Simple: Debt & Bonds
As we’ve repeated ad nauseum, “the bond market is the thing,” and its survival, like a diesel V8 engine, lives and dies on liquidity/grease—i.e. dollars.
After trillions in outright grotesque QE grease following the bond crisis of 2020 and a hidden TBTF bank bailout (disguised as pandemic relief), the combined efforts of the Fed and Treasury Dept (i.e., the yin and yang of Powell and Yellen) to provide backdoor liquidity to this thirsty market are both tragic and remarkable.
Despite Powell’s headline tightening since 2022, the level of direct Fed liquidity is still tens of billions per month, and the hundreds of billions provisionally drawn from the reverse repo markets, the Treasury General Account (TGA), the Bank Term Funding Program (BTFP) are just QE by another pathway.
In addition to these tricks, tack on Yellen’s desperate attempt to issue trillions from the short end of the yield curve to take supply (and price) pressure off the sacred U.S. 10-Year, we can trace more examples of open desperation and backdoor liquidity by another name.
But at some point, all these liquidity tricks (as well as liquidity) run dry…
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