“If rates continue to rise the way that they’ve been rising, eventually there’s going to be a financial accident, eventually something will break,” said JP Morgan’s David Lebovitz on Bloomberg Surveillance.
The average rate on new mortgages in the US is near 8pc. Pending home sales fell 19pc in August from a year earlier and are likely to fall even harder through the autumn. Roughly $1.8 trillion of US commercial real estate has to be refinanced over the next 18 months in very hostile conditions.
Almost half of America’s 4,800 banks are sitting on assets worth less than their liabilities, according to a study by four leading bank experts. The market value of their loan and bond portfolios was $2 trillion lower than stated book value as of March, and it is surely worse today. A soft bail-out by the Fed has masked the problem but cannot mask the slow erosion of capital buffers, with leveraged effects on credit through the banking multiplier.
Trouble could start anywhere in the financial system, most likely in a pocket of the shadow banking system. “It will probably be a hedge fund that nobody has ever heard of, then we will find that some bank has lent it tons of money, and the chain reaction begins, just like LTCM in 1998,” said one City banker.
So where do you turn? Sooner or later the US economy will snap, and the world economy will snap with it, and this will short-circuit the rise in bond yields.
You could do worse than buying 20-year or 30-year Treasuries, gilts, bunds, or French OATs, at a fraction of face value. You hold tight until central banks slash rates and abandon QT, realising how much they have over-tightened (too late, my friends), and then flip all the way to QE, this time by another name to fool us for a while.
For the brave, the contrarian bunt of the moment is Austria’s 100-year bond, trading today at 4pc of face value, the perfect QE play.
Or if you want a plain vanilla defence against spiralling deficits and financial repression, just buy gold.
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Why the Fed will again have to slash rates to zero and relaunch QE
“If rates continue to rise the way that they’ve been rising, eventually there’s going to be a financial accident, eventually something will break,” said JP Morgan’s David Lebovitz on Bloomberg Surveillance.
The average rate on new mortgages in the US is near 8pc. Pending home sales fell 19pc in August from a year earlier and are likely to fall even harder through the autumn. Roughly $1.8 trillion of US commercial real estate has to be refinanced over the next 18 months in very hostile conditions.
Almost half of America’s 4,800 banks are sitting on assets worth less than their liabilities, according to a study by four leading bank experts. The market value of their loan and bond portfolios was $2 trillion lower than stated book value as of March, and it is surely worse today. A soft bail-out by the Fed has masked the problem but cannot mask the slow erosion of capital buffers, with leveraged effects on credit through the banking multiplier.
Trouble could start anywhere in the financial system, most likely in a pocket of the shadow banking system. “It will probably be a hedge fund that nobody has ever heard of, then we will find that some bank has lent it tons of money, and the chain reaction begins, just like LTCM in 1998,” said one City banker.
So where do you turn? Sooner or later the US economy will snap, and the world economy will snap with it, and this will short-circuit the rise in bond yields.
You could do worse than buying 20-year or 30-year Treasuries, gilts, bunds, or French OATs, at a fraction of face value. You hold tight until central banks slash rates and abandon QT, realising how much they have over-tightened (too late, my friends), and then flip all the way to QE, this time by another name to fool us for a while.
For the brave, the contrarian bunt of the moment is Austria’s 100-year bond, trading today at 4pc of face value, the perfect QE play.
Or if you want a plain vanilla defence against spiralling deficits and financial repression, just buy gold.
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