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ACG's McDonald on Central Banks: Witnessing Pure Evil (Audio) · Bloomberg Intelligence

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  Speaker 1: tenure bond yields falling to a near record load. That's
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  Speaker 1: coming up. Larry McDonald, he covers the bond market very
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  Speaker 1: again recapping stocks or Laura SMP five hundred indecks now
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  Speaker 1: down by three points to two thousand seventy five, a
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  Speaker 1: and that's a Bloomberg Business flash. This is taking Stock
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  Speaker 1: with Kathleen Hayes and Pimpbox on Bloomberg Radio. The yield
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  Speaker 1: on the benchmark US government note fell to a near
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  Speaker 1: record low today, as the yield on Germany's ten year
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  Speaker 1: debt fell low zero for the first time on record.
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  Speaker 1: Here to tell us more about the bond market is
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  Speaker 1: Larry McDonald. He is Managing Director ahead of Global macro
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  Speaker 1: Strategy at a CG Analytics, and he is also the
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  Speaker 1: author of the book A Colossal Failure of Common Sense,
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  Speaker 1: The inside story of the Collapse of Lehman Brothers. And
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  Speaker 1: he is also the editor of The Bear Trap. Larry McDonald,
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  Speaker 1: thank you very much for being with us, wondering if
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  Speaker 1: you could just tell us your thoughts about the record
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  Speaker 1: low yields. What are the implications for this near negative
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  Speaker 1: rate on many sovereign bonds? Well, thanks very much, FIM.
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  Speaker 1: I think we are within a few days of a
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  Speaker 1: classic blow off top in bonds. What's happening around the
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  Speaker 1: world is is pure evil. This is pure We're literally
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  Speaker 1: witnessing pure evil. Central bankers are putting forcing capital into
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  Speaker 1: places it just shouldn't be. We've gone from one trillion
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  Speaker 1: of of negative yielding bonds a year ago to probably
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  Speaker 1: over eleven trillion today. And the thirst for yield, the reach,
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  Speaker 1: the reach, reach, reach for yield is creating a so
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  Speaker 1: much systemic risk globally, uh that I think the near
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  Speaker 1: term run Uh, it will will end here sometime in
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  Speaker 1: the next hours. Why the next forty hours. It's been
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  Speaker 1: going on for months. Well, we saw this last thanks Kathleen.
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  Speaker 1: We saw this last We saw this on Sebruary eleventh,
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  Speaker 1: We saw this last April, and we also witnessed this
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  Speaker 1: on October four in two thousand fourteen. And Uh, when
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  Speaker 1: you have a rush into bonds like we've seen that's
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  Speaker 1: so far and so fast and so violent, uh, you
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  Speaker 1: it gets overdone and it's too many people are on
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  Speaker 1: one side of the boat, Kathleen. The bottom line is
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  Speaker 1: the central bankers have kept interest rates so low that
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  Speaker 1: there's hundreds and hundreds of hedge funds, acid managers thirsting
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  Speaker 1: for some type of alpha, thirsting for it, so that
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  Speaker 1: the student body goes left, the student body goes right,
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  Speaker 1: and and then what's happening is too many people are
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  Speaker 1: on one side of the boat chasing this yield, and
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  Speaker 1: they're gonna get whipside back out as they as we
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  Speaker 1: witnessed on October fourteenth, two thousand fourteen, as we witnessed
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  Speaker 1: on February and leventh of this year. It's just too
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  Speaker 1: many people on one side of the boat and it's
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  Speaker 1: not going to take much to get to to really
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  Speaker 1: capsize the vessel. Alright, what if you could comment on inflation?
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  Speaker 1: Do you believe that it is already with us? Well,
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  Speaker 1: we're I think I think we're in a we're obviously
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  Speaker 1: in a global deflation deflationary cycle that is starting to
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  Speaker 1: reverse itself here in the United States a little bit.
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  Speaker 1: But we globally were in disinflation. Uh. Evidence of real
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  Speaker 1: inflation in the United States is very suspect. And uh,
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  Speaker 1: there's just too many people because of these developed markets
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  Speaker 1: have aging populations, right number one? Uh they two number
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  Speaker 1: two democracies, Republican republic democracies have promised so many goodies
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  Speaker 1: to so many different people that the amount of people
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  Speaker 1: that are sitting at home not working in the developed
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  Speaker 1: markets is our proportions that we've never seen our lifetime.
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  Speaker 1: And so we have young people to fifty the most
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  Speaker 1: in thirty years in the United States that are not
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  Speaker 1: working that they're just sitting at home. God knows what
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  Speaker 1: they're doing, but they're not working. And that's that's not creating.
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  Speaker 1: That's not creating. I think that hilaria is that so
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  Speaker 1: many people are saying with the central banks have done
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  Speaker 1: wrong is take all the way to the world on
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  Speaker 1: their shoulders, and we need physical action and the government's
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  Speaker 1: giving both people money to stay home, and that's that
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  Speaker 1: is not working either, is what you're saying. Now. Are
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  Speaker 1: when you said that this will be over, this this
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  Speaker 1: super nova of a bondmark rally in four eight hours,
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  Speaker 1: do you just mean a little crack back up and
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  Speaker 1: we'll see the tenure German buon back above in positive
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  Speaker 1: territory for a while and maybe the tenure known in
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  Speaker 1: the US s to one seventy or so, and then
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  Speaker 1: the rally continues. Well, many people are saying, you know,
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  Speaker 1: one fifties easy, one point to five on the US
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  Speaker 1: ten years entirely possible. We'll keep in mind you're on
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  Speaker 1: the phone with one of the biggest bond bulls on
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  Speaker 1: Wall Street that's been around for the last I've been
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  Speaker 1: one of the biggest bond bulls. It's two years ago.
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  Speaker 1: People were laughing at me when we were calling for
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  Speaker 1: one forty on the tenure. So the entire street told
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  Speaker 1: us two years ago that we would be at three
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  Speaker 1: and a half on the tenure. The entire street of
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  Speaker 1: the street told us two years ago we would be
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  Speaker 1: at three to three and a half. We have to
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  Speaker 1: get we have to get ready for life after lift off.
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  Speaker 1: They lectured us hours and on end it was they
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  Speaker 1: were all the wrong. The entire street has been wrong.
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  Speaker 1: So I think to your point, yes, I think it's
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  Speaker 1: going to be a vicious sell off, but once again,
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  Speaker 1: it probably lasts a month or two. And I don't
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  Speaker 1: think it's the coupe data in the moment of the
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  Speaker 1: great reversal in the bond market. That's probably six to
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  Speaker 1: nine months away. But I don't think it's happening next month. Well,
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  Speaker 1: you know what also is about maybe six months away,
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  Speaker 1: is a new president in the United States. Do you
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  Speaker 1: think that politics is playing a role in this. Well,
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  Speaker 1: that's the thing exactly, tim is is that we talked.
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  Speaker 1: We talked about this on our Bear Traps report, on
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  Speaker 1: on Twitter, our handles at Convert Bond, and we we
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  Speaker 1: just did a report last week with our team in
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  Speaker 1: Washington and it was very well received by You're right,
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  Speaker 1: the deficit spending Reagan type programs are coming out of
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  Speaker 1: Trump in terms of stimulus, and that's going to increase
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  Speaker 1: the depth sit and that's when you're get to get
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  Speaker 1: a reversal in bond. Derry McDonald had a global macro
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  Speaker 1: strategy at a CG Analytics. He's editor of the Bear
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  Speaker 1: Transfer for report, and you may recall that he's the
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  Speaker 1: author of a colossal failure of common sense. This is
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  Speaker 1: Bloomberg Radio. Coming up on taking Stock. We're gonna be
• 11:02
  Speaker 1: speaking with Larry Rosenthaal. He helps manage more than six
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  Speaker 1: hundred million dollars at Rosenthaw Wealth Management Group. What's he
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  Speaker 1: telling his clients to do with their money? That's next