Unbalanced

The economic machine continues to move away from equilibrium. Silver is experiencing manipulation and wild swings, falling 40% in 5 days, while Bitcoin took a nose dive to $61k yesterday and is trying to find a floor, even when it seems to be trading below the cost of mining. And then the correlation between the yen and the rate differential between the 10 year U.S. treasury bond and the 10 year JGB, has broken. You can see how both diverge in the chart below. This is very important in terms of flows and liquidity for both markets, the U.S. and Japan. Those two lines need to find common ground soon to avoid a sudden move. We’re witnessing 3-5 sigma movements in different asset classes, mostly accelerated by leverage, high valuations and algorithmic trading. Central banks may be starting to turn, as we saw the BoE, and the ECB holding rates steady, perhaps pausing the easing cycle, and the central bank of Australia recently raised rates by a quarter point, perhaps signaling a tide turn for global liquidity. Volatility is set to increase.

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