@factor_members 1/x Reflation narrative might be short-lived (end 2021) & bond's final peak yet to come. Let me explain why this is possibility: 1. Too high inflation risk premia. 2. Rates higher than had to be. 3. Eurodollars parked. 4. No banks credit growth. Below will clarify each of these:
@factor_members 2/x 1. Inflation risk premia: creditors demand too high rates to the policy rate. At 0% rate, loans can be from 3%-30%. This tax on $100+ trillions debt is exactly why growth lacks and people/smaller firms can't pay debts - so debts increase even more.
@factor_members 3/x 2. Contrary to popular opinions, for the huge world debt problem, rates were higher than had to be because they did not force banks to lend and decrease inflation risk premia. What if FED chased the problem too slowly and never created the dynamic needed after 2009?
@factor_members 4/x 3. The Eurodollars market sleeps because there is not negative rates penalty, big enough to force the $15 trillions+ to be used. Last the market was active was before the GFC and China's rise.
@factor_members 5/x 4. No banks credit growth. Below's chart is from the US but its same in EU & China is tightening. Banks just don't give loans & require high loan rates. The only way to change all this is window guidance or+ negative rates. QE is not enough as Japan showed us after ♾ ops.
@factor_members 6/x I'm not saying what is needed is right. I just wanted to share my opinion about some market misconceptions. Everyone is waiting the bond bubble to pop at any moment but something must really change. I don't see this yet: QE and fiscal stimulus is not enough.
@factor_members 7/7 The debt is going up & nobody can pay it without more. This will continue until loan rates converge to policy rates, so paying back the debt is possible. The tax creditors take from the debtors is too big for the situation. World growth is not that big.

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More from @ilipaskalev

30 Apr
1/x CME raised Corn $CORN $ZC margin requirements by 11.8% yda. When CME/others wanted to END the Silver $SI parabola in 2011, they raised margins 5 times in 2 wks by 84% and $SI topped ~$49.8 starting 10+ years bear market. What is similar & diff btw $SI back then and $ZC now:
2/x (Similar): excessive short-term speculative positioning + high volatility + social costs + narrative + China. (Different): LT fundamentals in terms of supply & demand + long-term positioning. Lets review each:
3/x $SI had 24k ($5 bln) long contracts from speculators & 100 mln new ozs added to ETFs 2010-2011 worth ($5 bln), so total ($10 bln) at 26 Apr 2011, $ZC has now 522k ($17 bln) long contracts of specs. Both of these spec positions are at huge profit based on when were built.
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