The Hemorrhaging of Europe | QPOL Issue #60
How Powell’s High For Longer Orchestrated the bond vigilantes against Yellen and Lagarde.
Last Monday September 25th, I interviewed Tom Luongo to discuss what’s happening in the debt markets. See below 👇
As mentioned multiple times on QPOL (see article below)…
….vandals within the US government are selling out America’s economy for their own personal and international interests. The notable culprit is Treasury Secretary Janet Yellen who had been strip mining the IS economy and working against Powell’s monetary policy through YCC (yield curve control), via buying 10 year treasury notes and selling the 2 years. Doing so helps the ECB’s Christine Lagarde out freezing capital from fleeing an already failing/capital hemorrhaging Europe.
The Numbers Don’t Lie
A week after our discussion, it’s evident that Lagarde is running out of options, as well as money. No longer can she effectively manipulate credit spreads on German debt to make it appear it trades at a premium to the US 10yr, but she’s lost support for the Euro as well.
If you recall from a past article, I explained how via Tom’s teachings, Lagarde can only defend either the euro or credit spreads. She can’t do both. Evidently, she’s reached the point where she can do neither. The graphic below is from Monday, October 2
The yield curve on German debt continues to rise, due to the bond vigilantes (as covered in the discussion with Tom), are calling Lagarde’s bluff and shorting the German 10yr. The DXY is up and the euro keeps dropping. Lagarde dropped the ball on both her “choices.”
Not only that, but the yield curve continues to normalize to a healthier “up and to the right” formation as the market wakes up to the reality that US debt (however large the deficit it…which is shrinking thanks to “QT in the background”), is much more credible than European debt, which I’ll refer to as Eurodebt from here on.
Before we go any deeper, let’s provide some quick background.
Bond Vigilantes Strike Back
The bond vigilantes are going to short the 10yr in order to sink the price so the coupon/interest paid on them goes up in order to normalize the yield curve. This is all thanks to Powell’s higher for longer policy, and coordinates market participants to his will in normalizing the yield curve by seeing an opportunity to take profits via price discovery through shorting Eurodebt. The true value (or lack ther of) of Eurodebt is only revealed through higher for longer interest rate policy because Europe has no collateral and a weak economy compared to the US.
Therefore, the bond vigilantes shorting Eurodebt also works against Yellen’s strategy of buying the 10’s and selling the 2’s (YCC) in order to invert the yield curve to make the US economy look bad and freeze capital from leaving Europe and into the US.
By working/trading against Yellen’s efforts, the bond vigilantes are calling her out on her bull because they know US debt is much more valuable than European debt. Hence, knowing so signals an easy trade/short to scoop up easy money.
They’ll do the same thing by shorting the German 10yr and treating/trade Europe like it’s a third world country. It practically is thanks to the German Green Party’s and WEF’s efforts to destroy the economy and middle class for the sake of climate change/communist agenda they have.
Now Europe is having to back peddle and make energy deals with Russia to survive winter. This reveals a splitting faction within Davos that cooler oligarchic heads are prevailing and quite plainly want the war against Russia to be over.
This is why you simply can not separate the politics from the markets. Politics is the tail that wags the economic dog. The whole thing is politics because it involves people, their incentives, and their relationships with each other and power.
Running Out of Options
As an aside, I had a conversation with a colleague of mine, Mike Hobart (who’s Substack is also excellent), asking what I thought the validity of Yellen and Biden using military funding to funnel dollars to the EU since the Fed had refused to print in order to prop-up the Euro-dollar system and help bail out Europe. Almost as if those laundered funds could be getting used as a bandaid, almost like an “under the table BTFP” where it’s a grant, and not a repayment system like the BTFP itself. As if war aid is acting as bailout money for Lagarde.
Though somewhat tangential, it was still a good question, but I think the source of that funding comes from the same place Yellen is using to buy the 10 yr, and in that case she’ll run out of money as the bond vigilantes call her bluff and trade against her, especially as Powell holds/raises rates and let’s QT happen in the background.
The goal is to bankrupt the regime and that’s what Powell’s monetary policy is doing by coordinating the market’s incentives towards normalizing the yield curve. That’s how he’s unwinding the 12 + years of QE that we’ve had.
So to directly answer the question, they’ll be broke. Powell’s higher for longer policy is to force fiscal discipline in Congress. Even if they agree on a budget compromise to avoid a debt ceiling debacle, it works out in our favor because Powell’s higher for longer corrects the Keynesian dogma and mis pricing of markets and people’s incentives trading in the markets will respond accordingly to fix things as price discovery is allowable again and work against Yellen and Lagarde.
Again, the Eurocommies and globalists are just buying time at this point if anything and will keep getting bankrupted and front-run by the market/bond vigilantes. The “bad guys” are running out of options. Higher for longer leaves them strapped for cash and an escape hatch.
~ Phil Gibson
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