GM08: Watch out for The Bond Market Vigilantes ft. Jim Bianco

In today’s episode we are joined by Jim Bianco, the president and macro strategist at Bianco Research, L.L.C. Since 1990 Jim’s commentaries have offered a unique perspective on the global economy and financial markets. Unencumbered by the biases of traditional Wall Street research, Jim has built a decades long reputation for objective, incisive commentary that challenges consensus thinking. In nearly 20 years at Bianco Research, Jim’s wide ranging commentaries have addressed monetary policy, the intersection of markets and politics, the role of government in the economy, fund flows and positioning in financial markets. Jim is a true master when it comes to providing objective, data-driven research with a unique perspective and is very generous when it comes to sharing it, which I’m sure you will agree with after listening to today’s conversation. Topics Discussed in this Episode • The uniqueness of the 2020 financial crisis “What we did this time that’s unique to all the other ones is that we effectively did a global economic shutdown. That’s never been done before. No one really knows what that means and we’re still all trying to feel around in the dark as to what its implications are.” How the Federal Reserve has been aggressively manipulating the bond markets “Investors have been bailing out of the bond market in a big way. They were selling corporate, they were selling Treasuries, and they were moving themselves into money market funds. Foreign central banks even sold over 150-billion dollars worth of Treasuries as well, too. At the same time that they were doing that, the Federal Reserve stepped in and was, at one point, buying over 100-billion dollars a day of bonds. But it looks like what they’ve been effectively doing, is the words you hear all the time: yield curve control.” The Wealth Effect’ vs free markets "Trump thinks that if you ram the stock market higher it will create confidence, new jobs and GDP. The Federal Reserve and the Treasury Secretary thinks that too. Jerome Powell says this: “the free market was going to let these companies go out of business, but we prevented it and we saved those jobs.” Maybe the free market had a good reason to send those companies out of business?" The current retail stock market ‘mania’ The only group who can bring bond markets down: The Bond Market Vigilantes "There’s one group larger than the Fed, and that is what Ed Yardeni coined forty years ago - The Bond Market Vigilantes. The collective wisdom of the bond market is larger than the Fed. If you get inflation, and then everybody is of the perception that inflation is here, eroding the value of fixed-income investments, then they become of one mind, and that one mind is to sell." The scale and risk of the Federal Reserve’s borrowing and money printing “If the Treasury’s projections and the Fed’s projections are correct, between March and August they are going to, in either a combination of either print or borrow the equivalent of four years of tax receipts in five months. So, they will have created four years of tax receipts in five months to go towards trying to battle the contraction in the economy and the pandemic.” Implications of the recent, wild price swings in Oil “I think $40 is going to be a very tough problem for the oil industry to maintain and you’re probably going to see more cutbacks in production, maybe some bankruptcies. It’s probably going to put a floor on this market right now, assuming that the demand situation is somewhat stabilised and that we don’t have another violent downturn in the economy one more time.” How the Corona Virus may have accelerated trends that were already beginning to occur “So, we will create new jobs. We just don’t know what they are. The old jobs will go first,