Bubbles Weren’t Built In A Day, So Bond Purchases Will Continue

Bubbles Weren’t Built In A Day, So Bond Purchases Will Continue

By Ven Ram, Bloomberg Markets live commentator and analyst

 U.S. employers added more than half a million jobs in October, sending stocks to yet another record high on Friday. Over the weekend we also learnt that China exported much more than economists had penciled in — suggesting that demand to consume goods and services from around the world is robust. And most economies around the world are on track to grow at a pace that is well above trend growth next year.

Yet, if you looked at key yields across much of the developed world, you could be forgiven for thinking that the global economy is in dire straits.

And we still have central banks actively buying bonds, supposedly meant to support their economies. There is no question that monetary policy is too loose relative to where most of the developed-market economies are, spawning imbalances in financial markets and providing a backdrop conducive for asset bubbles to build.

Central banks are behind the curve, and seem to be willingly so: we got a taste of that with the Bank of England, which after weeks of warning about the dangers of runaway inflation, failed to walk its talk.

Raising rates, we were told, will not produce more gas or more semiconductor chips — meaning central banks can’t battle a supply problem. But how is that when the economy is hit with a pandemic and people are reluctant to travel and fill hotel rooms, central banks find it convenient to slash rates?

Do lower rates — or worse, central bank bond purchases — cure either of those? And therein is the big lesson for traders: monetary authorities will give us cockamamie excuses to lower rates with impunity, but will always be reluctant to raise them with anywhere near the same level of urgency simply because that’s just politically convenient. After all no one gets blamed for keeping rates artificially low.

Unfortunately, that means that financial markets are destined to lurch from one bubble to another.

Tyler Durden
Tue, 11/09/2021 – 21:45

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