Because they occupy (nearly...almost) the same space on the Greater Fool Asset Curve.
(A curve they never taught at University ...but exists is real world economics).
Bonds used to be rather safe assets...but their position on the curve depends entirely on the actions of central banks.
When the CB's print and inflate they move bonds out along the GFAC....towards the position that crypto currently occupies.
The theft of bond value....in the form of inflation is a close substitute to the lack of an income stream that is the characteristic of GFA's such as crypto.
So bonds in an inflationary environment behave as synthetic GFA's.
As they go out along the curve the volatility increases....
Inflation should go down....but not back to 2%......
So where are we now.....
We are on the other track....the crowded one.....
This is where all the defecit loving governments now compete for the limited supply of capital.....borrowing.....without the FED increasing the amount that can be borrowed....
Its called the "crowding out effect"....I remember the 70's......
I remember seeing the crowding out effect way back then.....
Thats what we are having now.....Government defecits crowding out private sector borrowing....
By offering higher rates for the limited supply of debt.....
This will be felt in the junk bond market.....
And in the housing market....
Then in the investment grade market
Already its not pretty.....
This will suck debt capital from periphery countries back to the USA....
Que debt distress and default by said periphery countries....
Que rising US$ exchange rate as funds sucked into USA to fund Government defecit.
The bond "vigilanties" (or should that be cuddly bond puppies) are sort of waking up from their sleeping beauty sleep.
Which is so long overdue.....
Because I am tired....so very tired....... of seeing good public companies...the ones that should be in portfolios....taken private by Private Equity carpet baggers...... using cheap/free leverage provided by the FED.
Two take privates have collapsed this week in Australia.,..because the debt has gotten more expensive....so the PE can't offer the usual 30% premium over market price to get the deal done.
All the good companies were being knocked off the exchange one by one.....
The ASX was being hollowed out....
The good companies that paid real dividends were leaving and being replaced by garbage wealth transfer vehicles......with no dividends and insane valuations.....
THOUGHTS ON INFLATION....ITS A PROCESS.... NOT AN EVENT
I mean if they can reduce the debt enough in real terms.... via more inflation.....then it becomes much easier to service it out of cash flows.
Then corporate america can withstand the higher interest rate required to bring inflation under control without defaulting.
So then and only then can they increase the fed fund rate above the inflation rate ....to the rate required by the Taylor rule.....and control it.
i.e. the Fed has to create a certain amount of inflation "The required Inflation" before it can get to the "Control Point" and control and then reduce inflation....it is a process the Fed has to undertake.
And who ever is the Fed chair when they reach the control point gets to bring the inflation down and becomes the "new Volker".
Uncle Warren I presume thinks that the printing priesthood will eventually pivot back to the big print.
The simple fact is that in order to control inflation (eventually....somewhere in the distant future ) the Eccles temple acolytes need to create more inflation in the present.
They cannot control inflation now because the cash flow needed to service the interest rate required is simply too great,
The numbers don't add up.
It would create a hard default situation....to be avoided at all costs.
But if they create enough inflation then cash flow will increase enough so the numbers do add up.
And then they will increase the rate enough to control inflation...and there will be no hard default.
And in the meantime the common shareholders of Oxy will get $3-4 billion of inflationary wealth transfer a year.
Ask Not What Your Fed Would Do To You, Ask What You... 9/30/22
in The Daily Stool - Stock Market Message Board
Posted
WHY DO BONDS TRADE LIKE CRYPTO
Because they occupy (nearly...almost) the same space on the Greater Fool Asset Curve.
(A curve they never taught at University ...but exists is real world economics).
Bonds used to be rather safe assets...but their position on the curve depends entirely on the actions of central banks.
When the CB's print and inflate they move bonds out along the GFAC....towards the position that crypto currently occupies.
The theft of bond value....in the form of inflation is a close substitute to the lack of an income stream that is the characteristic of GFA's such as crypto.
So bonds in an inflationary environment behave as synthetic GFA's.
As they go out along the curve the volatility increases....