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Weekly Commentary: De-Risking/Deleveraging At The Periphery

Doug Noland profile picture
Doug Noland


  • The week began with a decent bout of hope. The S&P 500 rallied 2.8% in Monday trading, “its strongest one-day gain since June.”.
  • It’s reasonable to conclude markets were disappointed by Powell not directly addressing potential yield suppression measures.
  • Inflationary pressures are now mounting, while inflationary dynamics are becoming increasingly entrenched - at home and abroad.

It was another unsettled week for notably synchronized global markets. The week began with a decent bout of hope. The S&P 500 rallied 2.8% in Monday trading, "its strongest one-day gain since June." Having begun in Asia, the market rally gained momentum in European trading, which set the stage for a gap higher opening for U.S. equities.

A spark was provided by the Reserve Bank of Australia. After its previous Friday attempt fell flat, Australia's central bank Monday doubled down on its bond purchases, essentially expending $3.1 billion in its yield control operation. Australian 10-year yields collapsed a remarkable 35 bps to 1.67%, more than reversing the previous Friday's spike.

After Japanese 10-year yields rose to a five-year high 16 bps Friday, there was a report Monday claiming the Bank of Japan was prepared to act against any excessive rise in yields. And then ECB governing council member Francois Villeroy stated the ECB "can and must react" against any unwarranted tightening (aka higher bond yields). European yields reversed sharply lower on his comments, with double-digit declines in Italian and Greek yields. Equities caught fire. Relief that a concerted central bank effort was poised to counter rising global yields powered Monday's risk market recovery. It would prove fleeting.

March 4 - Financial Times (Naomi Rovnick, Neil Hume, Joshua Oliver, Aziza Kasumov and Colby Smith): "Government bond prices sustained a further blow on Thursday, prompting benchmark stocks to wipe out close to all gains for the year, after comments from Federal Reserve chairman Jay Powell failed to reassure investors… 'Today was a really interesting day because the market was really firm, a little tentative but firm, and then Powell spoke,' said George Cipolloni, a portfolio manager at Penn Mutual Asset Management. 'He really didn't say anything dramatically different, other than that they're not at their target yet… which is rattling markets.'"

This article was written by

Doug Noland profile picture
I'm at about 30 years persevering as a “professional bear.” My lucky break came in late-1989, when I was hired by Gordon Ringoen to be the trader for his short-biased hedge fund in San Francisco. Working as a short-side trader, analyst and portfolio manager during the great nineties bull market – for one of the most brilliant individuals I’ve met – was an exciting, demanding and, in the end, a grueling and absolutely invaluable learning experience. Later in the nineties, I had stints at Fleckenstein Capital and East Shore Partners. In January 1999, I began my 16 year run with PrudentBear (that concluded at the end of 2014), working as strategist and portfolio manager with David Tice in Dallas until the bear funds were sold in December 2008. In the early-nineties, I became an impassioned reader of The Richebacher Letter. The great Dr. Richebacher opened my eyes to Austrian economics and solidified my lifetime passion for economics and macro analysis. I had the good fortune to assist Dr. Richebacher with his publication from 1996 through 2001. Prior to my work in investments, I worked as a treasury analyst at Toyota’s U.S. headquarters. It was working at Toyota during the Japanese Bubble period and the 1987 stock market crash where I first recognized my love for macro analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated summa cum laude from the University of Oregon (Accounting and Finance majors, 1984) and later received an MBA from Indiana University (1989). By late in the nineties, I was convinced that momentous developments were unfolding in finance, the markets and policymaking that were going unrecognized by conventional analysis and the media. I was inspired to start my blog, which became the Credit Bubble Bulletin, by the desire to shed light on these developments. I believe there is great value in contemporaneous analysis, and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke has referred to understanding the forces leading up to the Great Depression as the “Holy Grail of Economics.” I believe “The Grail” will instead be discovered through knowledge and understanding of the current extraordinary global Bubble period.

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