In 2018, Central Banks Will Have to Choose… Blow Up Stocks or Bonds…
In 2018, Central Banks Will Have to Choose… Blow Up Stocks or Bonds… by Graham Summers – Gains Pains Capital
And they’re going to choose to let stocks go.
The #1 driver of the stock market is Central Bank money printing. In 2017 alone, the BoJ and the European Central Bank (ECB) have printed over $1.5 TRILLION and funneled it into the financial system.
The primary goal of this is to ramp stocks higher. But the consequence is that inflation has been unleashed.
We are getting signs of an inflationary shock throughout the world: in Germany, China, the US, the UK, and even Japan.
And this is a MASSIVE problem for the Bond Bubble.
Bond yields trade based on inflation. If inflation rises, bond yields will do the same. And when bond yields rise, bond prices COLLAPSE. And when bond price collapse, the bond bubble bursts.
And so the BoJ and other Central Banks now face a choice:
1) STOP QE and money printing to try and halt inflation (thereby letting stocks collapse).
2) Keep printing money, let inflation spiral out of control, bursting the Bond Bubble and triggering a deflationary crisis that will make 2008 look like a joke.
The choice is obvious: Central Banks will be tightening… at least temporarily.
Truth is most stock markets could drop 30% and still be in bull markets.
But if bonds drop… entire countries will go bust (think Greece in 2010).
Do you really think the US, Japan, China, and the EU could service their debt loads if rates were normalized? Collectively these countries have added over $20 trillion in debt since the 2008 crisis.
And ALL of this has been built on the back of the Bond Bubble. And because Bonds are the bedrock of the financial system, when they go into a bubble, EVERYTHING goes into a bubble.
This is why I coined the term The Everything Bubble in 2014. It’s also why I wrote a book on this issue as well as what’s coming down the pike: because when this bubble bursts (as all bubbles do) the policies Central Banks employ will make those from 2008-2015 look like a cakewalk.
Put simply: Central Banks will not risk blowing up the bubble in bonds. And so the money printing will be halted (for now) and stocks will be dropping.
The time to prepare for this is NOW before the carnage hits.
On that note, we are putting together an Executive Summary outlining all of these issues as well as what’s to come when The Everything Bubble bursts.
It will be available exclusively to our clients. If you’d like to have a copy delivered to your inbox when it’s completed, you can join the wait-list here:
Chief Market Strategist
Phoenix Capital Research