New York, Jay Hatfield, CEO & Fund Manager ~ We believe the recent sharp sell-off in global government bonds was caused by a sharp reduction in the Global Monetary Base (see the chart below for supporting details). We are forecasting that 10-year treasury rates are finding a top in the 4.25% area as we believe that Europe is heading into a recession as the ECB continues to pursue ultra-tight monetary policy by both raising short-term interest rates aggressively and executing a very aggressive quantitative tightening. In fact, the ECB has reduced its monetary base by over $500 billion during the last two months. We believe that this enormous base reduction is the primary driver behind the recent global sell-off in bonds.
However, the Eurozone economy is very vulnerable to a recession with GDP only growing by .2% over the last 3 quarters. The effect of the ECB’s aggressive monetary tightening has not yet been fully reflected and is likely to lead to a significant recession. The European mortgage market has a very significant exposure to floating rate mortgages particularly in Southern Europe, which is likely to cause a reduction in consumer spending as the full effects of rate increases are felt. The Eurozone PMI came in at 47 vs. expectations of 48.5 on Wednesday (8/23), which caused a rally in the Global Government Bond market.
The recent rise in rates has been global and the key driver of that decline is tight global monetary policy with the global monetary base dropping by $750 billion or 2.9% over the last 2 months led by the ECB reducing the monetary base by an unprecedented $675 billion.
Disclosure:
This information is not an offer to sell, or solicitation of an offer to buy any investment product, security, or services offered by Jay Hatfield, or Infrastructure Capital Advisors, LLC, (“ICA”) or its affiliates. ICA, will only conduct such solicitation of an offer to buy any investment product or service offered by ICA, if at all, by (1) purported definitive documentation (which will include disclosures relating to investment objective, policies, risk factors, fees, tax implications and relevant qualifications), (2) to qualified participants, if applicable, and (3) only in those jurisdictions where permitted by law. Jay Hatfield or ICA has beneficial long position in securities discussed either through stock ownership, options, or other derivatives; nonetheless, under no circumstances does any article or interview represent a recommendation to buy or sell these securities. This discussion is intended to provide insight into the current global bond market and is not a solicitation of any kind. ICA buys and sells securities on behalf of its fund investors and may do so, before and after any particular article herein is published, with respect to the securities discussed in any article posted. ICA's appraisal of a company (price target) is only one factor that affects its decision whether to buy or sell shares in that company. Other factors might include, but are not limited to, the presence of mandatory limits on individual positions, decisions regarding portfolio exposures, and general market conditions and liquidity needs. As such, there may not always be consistency between the views expressed here and ICA's trading or holdings on behalf of its fund investors. There may be conflicts between the content posted or discussed and the interests of ICA. Please reach out to the ICA for more information. Investors should make their own decisions regarding any investments mentioned, and their prospects based on such investors’ own review of publicly available information and should not rely on the information contained herein. ICA nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein. We have not sought, nor have we received, permission from any third-party to include their information in this article. Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or other comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. The information contained herein represents our subjective belief and opinions and should not be construed as investment, tax, legal, or financial advice. For more information, please contact Craig Starr by email at Craig.Starr@icmllc.com or phone 212-763-8336.
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