The G20 deal should not divert our attention from the reality of:
- Disinflationary pressures
- Rising spreads
- Global slowdown
Countries wanted to “copy the Fed” and the US deficit spend.
The trap: Markets are a relative game.
Now the US 10-year bond is the safest asset. And it is draining liquidity off any other risky asset.
Markets extend losses, and US 10Y yield falls to 2.98%. The opposite of what consensus expected, because consensus ignored monetary factors.
While global debt soared above 300% of GDP and the vast majority in countries worldwide increased fiscal -and trade deficits in many cases- estimates of global growth started to come down. Global debt rose almost 5% and global growth estimates fell 10% in the January to November period. Debt saturation. More debt, less growth.
As excess liquidity injections are taken out of the market the wall of debt faces the wall of worry and the world flies to the safest assets.
Not only we are witnessing the draining of excessive liquidity from markets. In 2019, 185 countries will increase deficits.
Net financing needs rise +Liquidity growth moderates = Multiple and asset valuation expansion ends.
As Amit Noam Tal (@amital13) says:
The Treasury Department’s cash position is now 340 billion USD, by the end of the year, it should stand at 441 billion USD. This means that 70 billion dollars will be taken out of the market in the coming month from the market. The shortage of dollars is expected to worsen.