Simone Wapler – La Chronique Agora (France) –
Recently, stock and bond prices have fallen in unison, challenging the risk on / risk off theory . This arrhythmia would announce deflation and inflation.
Monday, February 5, it was a crash started Friday, February 2 according to the media.
Tuesday, February 6 and Wednesday, February 7, it was only a consolidation or a correction.
Thursday, February 8, return to the dark world.
Volatility spooked markets
A little “volatility” and everything panics.
The key of analysis is not in equity markets, in our opinion. It is in the bond market, in credit.
The first bubble is the sovereign bond bubble swollen with bouncy interest rates.
The second bubble is that of stocks, swollen with easy credit backed by nothingness.
This is what financial jargon calls “cash”.
With these “liquidities”, we had a strange period during which bonds and equities went up in unison, at the same pace.
A tide of cash
The tide of liquidity of central bankers has managed to raise both stocks and bonds. This is a recent novelty (like the negative rates). Previously, money flowing from one compartment went into the other.
The maximum risk is equities. If people wanted security, they would take refuge in the bond market ( risk off ). If, on the contrary, they found that the conditions were favorable to risk, they sold bonds (the rates of which went up) to buy shares ( risk on ).
In recent days, shares plunge at the same time as bonds.
Shares and bonds now in the same boat
From now on, equities and bonds react in the same direction, both upwards and downwards.
Would central bankers be unable to withdraw cash without causing a crash? Yes, we think so, concerning the actions. The size of the real economy is unable to sustain the debt it is made to bear.
But for bonds? If the market sniffs inflation, it is normal that he also wants to flee this asset class.
This inextricable situation comes from monetary policies and credit. Formerly investors had three possibilities: gold or convertible gold, bonds, shares. They had the choice not to invest . This first choice has been removed from uses by credit.
We advised you to put money in gold, to refuse shares and bonds. We maintain that this choice remains the most judicious today. Gold can certainly retreat; it is indeed likely that at this stage, the dollar is rising; those who have recklessly borrowed in dollars will seek to procure them. But eventually you should not regret your choice – and inflation comes in, as Bill Bonner explains .
Deflation of financial assets and price inflation in the real economy: this fatal arrhythmia has already occurred during the “oil shocks” of the 1970s. An anomaly never really explained by traditional economists.
But what is real exists, despite the smoky theories of central bankers.