Doug Noland: Hurricane Matthew, Near Misses and Flash Crashes

Rising financial stocks notwithstanding, I’d be remiss for not suggesting that this week’s big movers (pound, yen, bunds, European periphery debt, Treasuries and gold) all have big derivatives markets. Are markets now more vulnerable to illiquidity and so-called ‘flash crashes’ because of heightened stress (and risk aversion) at Deutsche Bank and the other big derivatives operators more generally?
I’ll posit that to sustain the global government finance Bubble at this point requires both ongoing securities market inflation and ever-increasing monetary inflation. Rather suddenly it seems that global central banks are much less confident in QE infinity. There is serious disagreement in Japan as to how to move forward with monetary policy. And there were even this week rumors of ECB ‘tapering’ ahead of the March 2017 designated end to its QE program. Say what? Are the ECB ‘hawks’ ready to take control?
Meanwhile, markets seem to be pointing to an important downside reversal following this year’s historic melt-up in global bond prices. With Italian, Portuguese and UK bonds leading this week’s losers list, it’s tempting to imagine that fundamentals might start to matter again. And it’s going to be a real challenge to sustain global Credit growth in the face of rising bond yields. All bets are off if China’s latest attempt to tighten mortgage Credit actually works. That’s one scary Credit Bubble, and there are already indications that outflows are picking up again from China.

This post was published at Credit Bubble Bulletin