{"id":2419335,"date":"2021-11-15T12:56:11","date_gmt":"2021-11-15T17:56:11","guid":{"rendered":"https:\/\/www.valuewalk.com\/?p=2419335"},"modified":"2021-11-15T12:56:11","modified_gmt":"2021-11-15T17:56:11","slug":"the-bond-markets-violent-short-squeeze-continues","status":"publish","type":"post","link":"https:\/\/www.valuewalk.com\/the-bond-markets-violent-short-squeeze-continues\/","title":{"rendered":"The Bond Market&#8217;s Violent Short Squeeze Continues"},"content":{"rendered":"<p>For weekend reading, while commenting on the bond market&#8217;s violent <a href=\"https:\/\/www.valuewalk.com\/the-guy-who-turned-an-anomaly-into-48-million\/\">short squeeze<\/a>, Louis Navellier offers the following commentary:<\/p>\n\n\t<!-- Begin Mailigen Signup Form -->\n\t<script type=\"text\/javascript\">\n\t\tif (typeof jQuery == 'undefined') {\n\t\t\tdocument.write('<scr' + 'ipt type=\"text\/javascript\" src=\"https:\/\/list.mailigen.com\/js\/jquery.js\"><\/scr' + 'ipt>');\n\t\t}\n\t<\/script>\n\t<script language=\"javascript\" type=\"text\/javascript\" src=\"https:\/\/list.mailigen.com\/js\/scripts.js\"><\/script>\n\t<script language=\"javascript\" type=\"text\/javascript\" src=\"https:\/\/list.mailigen.com\/js\/subscribe2.js\"><\/script>\n\t<div id=\"MG-placeholder\">\n\t<style>.first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important}\n\n\tform.ebook-styles .error,\n\tform.ebook-styles #error {\n\t\tcolor:#d00;\n\t}\n\tform.ebook-styles .formfields h1,\n\tform.ebook-styles .formfields #mg-logo,\n\tform.ebook-styles .formfields #mg-footer {\n\t\tdisplay: none;\n\t}\n\tform.ebook-styles .formfields {\n\t\tfont-size: 12px;\n\t}\n\tform.ebook-styles .formfields p {\n\t\tmargin: 4px 0;\n\t}\n\t<\/style>\n<div style=\"background:#eee;display:block;overflow:hidden;margin-bottom:24px;padding:40px;\">\n<div class=\"two-thirds first\">\n<p style=\"font-size:22px;margin:0 0 10px;\">Get The Full Walter Schloss Series in PDF<\/p>\n\t<p style=\"line-height:1.4;margin-bottom:0;\">Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.<\/p>\n\t<form action=\"https:\/\/valuewalk.us4.list-manage.com\/subscribe\/post?u=c3eb7a1d092fc854772c834e0&amp;id=f6f5bdb8b5\" method=\"post\" id=\"mc-embedded-subscribe-form\" name=\"mc-embedded-subscribe-form\" class=\"validate\" target=\"_blank\" novalidate>\n <div id=\"mc_embed_signup_scroll\">\n \n\t\t\t\t<div class=\"af-element mc-field-group \">\n\t\t\t\t\t<div class=\"af-textWrap c1\"><input type=\"email\" value=\"\" placeholder='Email Address' name=\"EMAIL\" class=\"required af-element email\" id=\"mce-EMAIL\"><\/div>\n\t\t\t\t\t<div class=\"af-clear\"><\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"af-element buttonContainer\">\n\t\t\t\t\t<input type=\"submit\" value=\"Subscribe\" name=\"subscribe\" id=\"mc-embedded-subscribe\" class=\"button\">\n\t\t\t\t<\/div>\n \n \n\t<div id=\"mce-responses\" class=\"clear\">\n\t\t<div class=\"response\" id=\"mce-error-response\" style=\"display:none\"><\/div>\n\t\t<div class=\"response\" id=\"mce-success-response\" style=\"display:none\"><\/div>\n\t<\/div>    <!-- real people should not fill this in and expect good things - do not remove this or risk form bot signups-->\n    <div style=\"position: absolute; left: -5000px;\" aria-hidden=\"true\"><input type=\"text\" name=\"b_c3eb7a1d092fc854772c834e0_f6f5bdb8b5\" tabindex=\"-1\" value=\"\"><\/div>\n    \n    <\/div>\n\t<\/form>\n\t<script type='text\/javascript' src='\/\/s3.amazonaws.com\/downloads.mailchimp.com\/js\/mc-validate.js'><\/script><script type='text\/javascript'>(function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true);<\/script>\n<\/div>\n<div class=\"one-third\">\n<img decoding=\"async\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2017\/06\/Walter-Schloss_FINAL_JPG.jpg\" alt=\"Walter Schloss eBook\" style=\"width:100%; height:auto\">\n<\/div><\/div><\/div><!-- End Mailigen Signup Form -->\n<p style=\"text-align: center;\"><a href=\"https:\/\/valuewalkpremium.com\/q3-2021-hedge-fund-letters\/\" target=\"_blank\"><em><strong>Q3 2021 hedge fund letters, conferences and more<\/strong><\/em><\/a><\/p>\n<div class=\"ca-widget\" data-token=\"f5c8f36f2f97\"><\/div>\n<p><script async defer src=\"https:\/\/secure.money.com\/embeds\/embedder.js?v=1\"><\/script><\/p>\n<h2>The Bond Market's Violent Short Squeeze<\/h2>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>Provided the pandemic is winding down, I think Powell would like to see the 10-year <a href=\"https:\/\/www.valuewalk.com\/bond-market-education\/\">Treasury rate<\/a> above 2%<\/strong>. It will cool down the real estate market, it might push stock prices 10%-15% lower, and it may give the perception that the Fed is in control of the situation.<br aria-hidden=\"true\" \/><br aria-hidden=\"true\" \/>To be fair, hiking interest rates during a supply shock might be counterproductive, but there are plenty of things the Fed has already done to push inflation higher than it would otherwise be. <strong>The Fed has already helped the surge in home prices and stock prices, and Powell may be realizing that he has\u00a0gone too far<\/strong>.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><a href=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1.jpg\"><img decoding=\"async\" class=\"aligncenter size-full wp-image-2419336\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1.jpg\" alt=\"Bond Market\" width=\"1200\" height=\"713\" srcset=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1.jpg 1200w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1-300x178.jpg 300w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1-768x456.jpg 768w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1-696x414.jpg 696w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1-1068x635.jpg 1068w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-1-707x420.jpg 707w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/a><\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>The system is flush with cash<\/strong>. At the end of September, the Fed\u2019s overnight reverse repo facility had $1.6 trillion, which is a direct result of Fed open market operations. As Jerome Powell said on\u00a0<em>60 Minutes<\/em>\u00a0last year: \u201c<strong>We print it digitally\u2026When the Fed balance sheet grows, <a href=\"https:\/\/www.valuewalk.com\/the-threat-of-hyperinflation-and-why-you-should-be-concerned\/\">money supply<\/a> grows.<\/strong>\u201d<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>This is technically true, but practically misleading<\/strong>. The monetary base, which is the narrowest form of money supply the Fed controls directly, is money\u00a0for financial institutions only. They don\u2019t spend it on groceries or on mail-order goods; they spend it primarily on fixed income instruments or lend it to the <a href=\"https:\/\/www.valuewalk.com\/japans-economy-contracts-amid-supply-chain-turmoil\/\">economy<\/a> \u2013 if there are good loans to make. <strong>Lending growth now is weak, so this money ends up in various fixed income instruments, compressing credit spreads and depressing yields<\/strong>.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\">The Fed intends to aggressively taper the infusion of electronic dollars into the system at a rate of $15-$20 billion per month. I think we are already seeing the positioning for this tapering in both <a href=\"https:\/\/www.valuewalk.com\/hedge-funds-2\/stock-picks\/\">stocks<\/a> and bonds. <strong>Increasing that taper rate can push rates higher and stocks lower<\/strong>.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>When the Fed is compressing credit spreads, it is also supporting the stock market<\/strong>. In the near future, I suppose it plans to support it less via tapering.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><a href=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2.jpg\"><img decoding=\"async\" class=\"aligncenter size-full wp-image-2419338\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2.jpg\" alt=\"Bond Market\" width=\"1200\" height=\"703\" srcset=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2.jpg 1200w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2-300x176.jpg 300w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2-768x450.jpg 768w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2-696x408.jpg 696w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2-1068x626.jpg 1068w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-2-717x420.jpg 717w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/a><\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\">M2 \u2013 a much broader form of money supply \u2013 is not controlled by the Fed but by the banking system that extends credit, but <strong>if Uncle Sam guarantees the loans via the <a href=\"https:\/\/www.valuewalk.com\/billionaires-got-coronavirus-stimulus-checks\/\">CARES Act<\/a>, then Uncle Sam controls M2, not the banking system<\/strong>. That\u2019s money that buys groceries and gets spent, and is very different from the monetary base that the Fed gives to the banking system only.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\">Since government guaranteed lending is being phased out, this formerly soaring measure of money supply has dropped from growing at a 27% rate in February 2021 to 13.5% at last count. <strong>Since lending growth is weak and shrinking in the banking system, I think M2 will shrink some more<\/strong>.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>If the supply bottlenecks abate in the next six months \u2013 and that is a very big \u201cif\u201d \u2013 inflation should moderate, with decelerating M2 growth<\/strong>. In the meantime, to get a handle on the inflation situation, Powell likely wants 10-year Treasury yields higher, towards 2%. His language (given his hawk-like FOMC press conference) and his actions (the coming tapering) can do a lot to help Treasury yields reach that level.<\/span><\/p>\n<h2>Evergrande Keeps Missing Bond Coupon Payments<\/h2>\n<p><span data-ogsc=\"rgb(0, 0, 153)\">While the <a href=\"https:\/\/www.valuewalk.com\/alibaba-jumps-into-chinas-common-prosperity-bandwagon-with-155-billion\/\">Chinese Communist Party<\/a> (CCP) keeps a tight lid on any information leaking about Evergrande debt, one thing is sure: There are 60 million empty apartments in China held as \u201csavings accounts,\u201d as the Chinese like to store money in real estate and watch it appreciate. <strong>Anything that is done to reduce the flow of credit towards the real estate sector<\/strong> \u2013 like Chinese high yield bonds trading at levels higher than during the COVID crash in March 2020 \u2013 <strong>can cause the Chinese real estate market to roll over<\/strong>.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><a href=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3.jpg\"><img decoding=\"async\" class=\"aligncenter size-full wp-image-2419337\" src=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3.jpg\" alt=\"Bond Market\" width=\"1200\" height=\"686\" srcset=\"https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3.jpg 1200w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3-300x172.jpg 300w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3-768x439.jpg 768w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3-696x398.jpg 696w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3-1068x611.jpg 1068w, https:\/\/www.valuewalk.com\/wp-content\/uploads\/2021\/11\/Bond-Market-3-735x420.jpg 735w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/a><\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\"><strong>I don\u2019t believe Comrade Xi wants to see the real estate market crash, as that may change the Politburo\u2019s view on his \u201cPresident for Life\u201d campaign<\/strong>. The Politburo has been known to change Presidents before, and in order to pin the blame on somebody for a real estate crash, they may point directly to Comrade Xi.<\/span><\/p>\n<p><span data-ogsc=\"rgb(0, 0, 153)\">We have had plenty of potential crises in <a href=\"https:\/\/www.valuewalk.com\/us-china-trade-relations-and-the-annual-trade-deficit\/\">China<\/a> in the last decade. Each failed to topple the overleveraged system, including a spectacular crash in China\u2019s stock market in June 2015. <strong>Because more people are invested in real estate than stocks, the potential for an economic domino effect is bigger this time around<\/strong>.<\/span><\/p>\n ","protected":false},"excerpt":{"rendered":"<p>For weekend reading, while commenting on the bond market&#8217;s violent short squeeze, Louis Navellier offers the following commentary: Q3 2021 &#8230; <a title=\"The Bond Market&#8217;s Violent Short Squeeze Continues\" class=\"read-more\" href=\"https:\/\/www.valuewalk.com\/the-bond-markets-violent-short-squeeze-continues\/\" aria-label=\"More on The Bond Market&#8217;s Violent Short Squeeze Continues\">Read more<\/a><\/p>\n","protected":false},"author":21886,"featured_media":2419336,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"no","_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[6640],"tags":[],"states":[],"acf":[],"modified_by":"Umair Tariq","_links":{"self":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts\/2419335"}],"collection":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/users\/21886"}],"replies":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/comments?post=2419335"}],"version-history":[{"count":0,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/posts\/2419335\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/media\/2419336"}],"wp:attachment":[{"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/media?parent=2419335"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/categories?post=2419335"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/tags?post=2419335"},{"taxonomy":"states","embeddable":true,"href":"https:\/\/www.valuewalk.com\/wp-json\/wp\/v2\/states?post=2419335"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}