At the end of May, the world’s largest bond manager, Pimco, whose bread and butter depends entirely on the future of the price of bonds and by implication, interest rates (and being able to correctly predict where they go) and thus, on the Fed’s continued control of the market, made an ominous warning. Speaking to Bloomberg TV, the CIO of core strategies at PIMCO, Scott Mather, said that “we have probably the riskiest credit market that we have ever had” in terms of size, duration, quality and lack of liquidity” adding that the current situation compares to mid-2000s, just before the global financial crisis.
“We see it in the build up in corporate leverage, the decline in credit quality, and declining underwriting standards – all this late-cycle credit behavior we began to see in 2005 and 2006.”
What was even more concerning was Mather’s warning that the era where central banks are “powerful in terms of taking volatility out of the market and pumping asset prices up” is coming to an end: “The U.S. is about the only central bank that was able to normalize policy rates, but elsewhere, there is basically no monetary firepower left… I think that’s what you’re seeing now in markets. People are starting to come to a more realistic outlook about the forward-looking growth prospects, as well as the power of central banks to pump up asset prices.”
In short, and just like the BIS cautioned about a month later, central bank intervention in markets – the primary driver behind record high stock prices, and most if not all of the S&P’s upside in 2019 – is coming to an end, as the ability of central banks to actively manage markets is ending (watch the full interview here)….https://www.zerohedge.com/news/2019-07-12/ray-dalio-there-little-one-year-fed-stimulus-left-bottle