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2019-07-03

Stockman Italy Flying blind

You have to wonder how much longer Wall Street's incorrigible dip-buyers can deny the obvious. The Fed and its global convoy of central banks have flat-out ruined financial markets---meaning that they have become an unstable, unpredictable roller-derby divorced from the main street economy and uncoupled from the financial fundamentals.
Accordingly, the only remaining tools of navigation in the stock market are the fickle lodestar of momentum-chasing and the eternal hope for yet another round of monetary stimulus.
But the latter assumes that our monetary central planners know what they are doing, when, in fact, they constitute a posse of the financially deaf, dumb and blind, stumbling around in the monetary darkness.
After all, central bankers and economists even a few decades ago would have been at least at DEFCON 2 in response to the absurd yields posted in the bond markets this AM.
To wit, the 2-year Italian government bond yield fell into negative territory, while its 10-year bond at 1.79% is below even the meager 1.99% yield on the UST. Yet Italy is an ungovernable fiscal basket case with a 133% debt-to-GDP ratio and a population, labor force and economy which will be contracting as far as the eye can see.

Growing concern at IMF over the long-term side-effects of interest rates close to zero 
Some of the leading figures in central banking conceded they were flying blind when steering their economies. 
Lorenzo Bini Smaghi, the former member of the ECB’s executive board: 
“We don’t fully understand what is happening in advanced economies.”
 
Financial Times, April 17, 2013


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