CAPITALISM IN CRISIS (*) - The Cestrian Circle Newsletter

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Analysis by Alex King, CEO, Cestrian Capital Research, Inc.

(*) it will be fine

If you want to understand monetary policy in the West, look no further than the chart above. It shows the US30-yr yield but you can create the same chart for pretty much any sovereign bonds in Europe too.

I think that probably capitalism, which is credit-fueled, actually doesn’t really work, as its critics have long suggested. Or at least it doesn’t work over the long run unless a lot of lenders get wiped out periodically. If you’re a lender, you’re going to lend, because you’re a lender. You just hope it is other people that get wiped out when the deluge comes along every decade or two. Lately, lenders have learned that since capitalism was abolished in the West in 2008 and replaced with a kind of centrally planned welfare state for rich people, you can keep pushing the envelope because you never know, not only might you not get wiped out, you might be bailed out, directly or indirectly, by a flood of liquidity coming into the market. Yippee! And this is why a house cost about the same as it ever did if you price it in physical gold, and indeed more or less the same as it ever did if you price it in units of the S&P500, it just costs a lot more if you price it in dollars, sterling, euros or whatnot.

Anyway … we are approaching pain thresholds for the Beaten Generations in the 30yr, 20yr and 10yr yields. So either the system breaks and maybe folks stop scrolling and learn to complain again, or, policy delivers a drop in yields. Could be liquidity policy, could be foreign policy, who knows, but my guess is that yields are topping at this point. I have started to accumulate $TLT in baby-steps as a result. (Will delete if wrong).

Let’s get to see what’s up with markets.