The great Autumnal Bond Funding Season is upon us, but the looming taper of Central Bank Asset Purchase Schemes could well expose just how broken and dysfunctional bond markets have become. Markets always over-react to stress and panics, but when markets struggle with price discovery and liquidity the coming sell off could be magnified, which means a great buying opportunity in bonds may be coming!
Money supply economists argue inflation is nailed on, even if Central Banks and Governments taper QE and hold back further fiscal spending binges. But the consequences of the last 12 years of monetary experimentation, the massive inflation in financial asset prices, the changed investment environment, and rising inequality mean the coming crisis really will be different this time. Maybe it’s not inflation we should fear, but its much more evil and thuggish sibling – Stagflation.