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Brendan Bernstein @BMBernstein
, 21 tweets, 7 min read Read on Twitter
1/ Central banks around the world are turning the markets into the DMV. Inefficient, slow, full of unqualified 16 year olds trying to get a license

CB asset purchases and interest rate manipulation have distorted the pricing and information function of markets
2/ Bc. the stock market is so critical to capitalism this has profound 2nd order effects

Mises: "A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of titles to the means of production”
3/ Some CB's have even gone as far as buying up stocks. BOJ is a top 10 shareholder in 40% of their listed companies and Swiss bank isn’t too far behind.

This is our monetary policy people.
4/ BTW, the US isn't too far behind
5/ This has been done to postpone the inevitable deleveraging. No Fed chair wants it to happen on their watch. Every central banker is playing a game of hot potato.

Somehow we’ve squeezed $60tn more debt into the system since 2008

Talk about hair of the dog….
6/ The consequence has been extremely distorted markets. What does the DMV look like?

$9tn of negative interest rate sovereign bonds. Let that sink in. $9tn is getting paid to borrow money.
7/ Junk bonds yielding the same as treasuries — the worlds risk free rate and hurdle rate for the world's economy is trading at the same rate as bonds for companies supposedly in danger of bankruptcy

Thanks Draghi
8/ VIX -- the global measure of uncertainty and fear -- is at all time lows despite

- global populism
- presidents tweeting about launching missiles
- a growing power out of the East
- a retiree bomb about to go off
- growith wealth inequality
- massive student loan bubble
9/ Yields have also never been lower in history. Which is forcing pension funds that need to hit a 7% target, and savers way way out on their risk curve

Instead of getting a Honda CRV for their first car, people are choosing to fly a helicopter...(okay maybe this is too much)
10/ To compensate for low yields, pension funds have allocated to levered loan funds. The insatiable demand for levered loans is driving down corp rates, which is fueling a massive boom in share buybacks

Since 2012, 72% of S&P earnings growth has been driven by buybacks
11/ Share buybacks dampen volatility even further because companies are systematically buying every dip

Partially as a result, Nasdaq volatility is low as emerging market volatility.
12/ Investors need yield and sovereigns are capitalizing on this. Austria just issued a 100 year bond at a *2.1%* yield. That's likely negative real returns over 100 years.

Even TRON may be a better bet than this
13/ Junk bond spreads just hit their 2007 low despite debt levels increasing.

This is fun right?
14/ The US just printed lowest unemployment numbers in 50 years and consumer confidence just hit the 2000 high, yet we still have negative real rates. Rates should be at least double where they are now.

You can be certain that this is causing *massive* malinvestment
15/ The problem is that the Fed has a massive dilemma. If they don’t raise rates asset prices will continue to march upward beyond reasonable heights.

But, OTOH they can’t raise rates bc. of all the debt in the world and the massive increase in interest expense this will cause
16/ Since 1987, instead of treating underlying economic problems the Fed has attacked their superficial manifestation -- stock market declines -- and simply pumped more debt into the system.

It's like giving a cancer patient ecstasy instead of chemo.
17/ The markets are increasingly fake -- abstracted from economic reality -- but at least CNBC has something positive to talk about

Despite massive paper gains, the real value of the stock market has barely increased in nearly 2 decades
18/ The markets function is to allocate capital to profit generating companies. But instead theyre being manipulated to push political agendas

While the volatility may be lower than ever, we've created the largest tail risk & fragility in history
19/ The clearest casualty of this, IMO, will be fiat currencies. The Fed will have their way and attempt to increase prices and ease debt burdens at all costs.

Scarce assets will benefit tremendously.
20/ The markets are becoming the DMV. At all time highs, but absolutely meaningless in the information they convey.

a lot of this is inspired by @ArtemisVol. Read everything they have put out.
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