Summary: Negative Rates: Buy Swiss bonds for 1087, in 10 years get back only 1000!<br> Backfire: Trump wins if Dems march all the way to Impeachment<br> Hypocrisy: Record company share buybacks as execs offload their own shares<br> <br> The McAlvany Weekly Commentary<br> with David McAlvany and Kevin Orrick<br> <br> Lagarde’s ECB to Save the World with “Green Bonds”…<br> October 2, 2019<br> <br> “That’s what makes this show particularly interesting, as an observer, because the consequences – it’s not just a question of: Does it bounce when it hits the ground? If they’re juggling something of greater fragility, then the consequence of losing control and watching one thing that they are currently managing quite well – watching it drop, the consequences are much, much greater.<br> <br> - David McAlvany<br> <br> Kevin: David, we have been looking at some of the things going on, and it doesn’t necessarily spell true trouble yet. I’m thinking of the repo market and the Federal Reserve quietly putting 50-75 billion dollars in at night to just try to keep things calm. You know what it reminds me of? Years ago, back when I was 18 or 19 years old, I went to a festival that taught me how to juggle. I bought the juggling balls and actually, I did learn to juggle. And I still do that. Just to clear my mind I’ll pick up three rocks and juggle, or what have you. But I can only do it for so long before one of the balls starts getting a little far to the outside. And then I reach, and then another ball gets a little further to the outside, and then I have to reach.<br> <br> David: (laughs)<br> <br> Kevin: You know, you’ve seen jugglers where it’s not going terribly wrong yet, but you know something is going wrong and you know a ball is going to hit the ground at some point.<br> <br> David: I see it in the treasury market today. You have treasury yields that have moved this year by close to 50%. You have the ten-year treasury that has gone from 2.79 – this is a U.S. treasury. That was its high earlier in the year. It dropped to 1.47 – 2.79 to 1.47 – and then from 1.47 in September to 1.9 in less than 30 days. That is massive volatility. Today it sits about 1.66, but the marked characteristic in the U.S. treasury market has been that of radical volatility.<br> <br> Kevin: Watch interest rates. You talked to Jim Grant. He writes the Interest Rate Observer. That is a very expensive newsletter, and people pay good money for a guy who understands interest rates. But you interviewed, probably, the man of all interest rate observers, which was Dick Sylla, five or six weeks ago. He wrote the book, The History of Interest Rates, 4,000 years.<br> <br> David: That’s right, Homer and Sylla. It is kind of the standard text, and he is a man who knows a thing or two about interest rates. Make use of our archives. If you missed that interview with Dick Sylla I think it is really key. We know that bonds are subject to natural bouts of supply and demand shifting, and with that you do see some volatility.<br> <br> Kevin: Yes, but we’ve seen central banks be guaranteed buyers. Why in the world do we see volatility at all in bonds? You know they are going to come in and buy them if they need to.<br> <br> David: This is to your point. It is all under control as long as you keep those three or four, or however many things you are juggling, kind of close to you. As they get a little bit out of control, a little bit out of reach, all of a sudden that appearance of, “Look at me, I’ve got all of this managed.”<br> <br> Kevin: Order becomes chaos really quick.<br> <br> David: Right. We are getting used to the use of central bank balance sheets as a fresh source of demand. They’re there, they’re in the market, but importantly, it’s not just a distortion in price which results, but there is an erasure of vital information which is conveyed in that rate of interest.
