In this week's Off The Cuff podcast, Chris and Wolf Richter discuss:
- China's Warning Shot
- The recent Treasury gambit is classic geopolitics
- Downdraft Risk
- Will it be possible to avoid a crash in 2018?
- Real Estate Is Looking Vulnerable
- Key markets are running out of buyers
- Rising Oil Prices
- A major candidate for the pin to pop this bubble
Wednesday, the markets lurched in fear as China announced it was thinking of slowing/stopping future purchases of US Treasurys. Later, a Chinese spokesman declared the story "fake news". But was it? Or was this a deliberate geopolitcal chess move meant to deliver a stern warning to America?
As far as the markets being wrecked and distorted, I totally agree.
On the other hand, the Fed has been very vocal about trying to raise long-term rates. It's allowing its Treasury holdings to roll off so that some of the maturing Treasuries are not being replaced. The balance of its Treasuries has actually gone down since they started this program. So they're pretty serious about trying to nudge up the long-end as they're worried about the flattening yield curve.
I think they would welcome an orderly rise in long-term yields up to a point. Obviously, they don’t want something that will cause credit to seize up, or cause something to break or collapse. But I think they'd like an orderly increase in long-term yields. Right now their target for the Federal Funds rate is 1.25-1.50%, so they want 1o-year yields to be 300 basis
by kugscheese 
