Paper Gold: Utopia for Alchemists
John Hathaway, respected authority on the gold market and senior portfolio manager with Tocqueville Asset Management has written an excellent research paper on the fundamentals driving the gold market today.
While the market for corporate bond issuance has been relatively quiet among the recent broader market turbulence, in a few hours a historic new bond is about to price and be sold to investors.
Since The Fed hiked rates in December, the market's inflation expectations have collapsed in yet another clear indication of "policy error." 5Y5Y Forward inflation swaps have crashed below 2.00% for only the 3rd time in history (Lehman 2008 and September's Fed Fold were the other two) as despite central banker promises of transitory low-flation, the money is being bet against them as the regime-shift from full-faith to no-faith in Fed support continues.
But a rate-hike was supposed to stimulate inflation?
Confirming API data overnight, DOE reports that while total inventories of crude rose less than expected (+234k vs +2.1mm exp.) Gasoline and Distillates saw a massive build once again. Gasoline invenrtories rose 8.44mm barrels (following last week's 10.6mm record build) is the biggest 2-week inventory build in history. Crude has crashed back from overenight "China is buying oil" demand hopes.
Back on December 8, in a post laying out what we then thought was "Jeff Gundlach's Most Bearish presentation yet" titled, appropriately enough, "Tick, Tick, Tick", the DoubleLine founder was at a loss for words trying to explain just why Yellen is hell bent to hike rates in one week, just when the global economy is not only clearly not in the required shape, but warning that the outcome from a Fed rate hike will lead to a dramatic repricing (lower) across all asset classes.