First, please accept my apologies that this EVA issue, based on my in-progress book titled “Bubble 3.0”, is out of sequence. My intent was to run it as a later chapter in the actual book, but I was concerned that if I didn’t run it soon as part of our newsletter, I might miss my chance to create this on a before-the-fact basis. If you are wondering what that “fact” might be, it relates to my suspicion that we might in the final act of what I have formerly referred to as “The Great Levitation”.
Over the last year, it has been a challenging environment for bond investors as interest rates continue to grind higher. Inflation readings registering multi-year highs are certainly one factor causing higher borrowing costs. However, perhaps the biggest influence on higher rates is the shifting supply and demand dynamic from fiscal and monetary policy changes. On the fiscal side, the tax overhaul, along with increased military and domestic spending, is expected to significantly widen our budget deficit, which means a surge in treasury borrowing.
Regular EVA readers are no strangers to Danielle DiMartino Booth, former senior adviser to Dallas Fed President Dick Fisher before and after the housing bust. Even sporadic viewers of CNBC are likely to have seen her repeatedly interviewed on nearly all things Fed-related.
Given the spectacle that played out in Singapore at the beginning of this week, it’s easy to forget the state of uncertainty that markets and individuals lived in at times last summer when Kim Jong-un and President Trump traded nuclear war intimidations.
The ongoing EVA series with excerpts from my upcoming book (tentatively titled “Bubble 3.0, How Central Banks Created the Next Financial Crisis”) is getting a lot of attention from clients and readers. Depending on which camp people sit in – see-no-trouble bull or too-lightly-invested bear – the responses either strike a dispiriting or encouraging tone.