The jaws of death are opening wide, but it is a mathematical certitude they will close back with a vengence.



The current bull in equities has been fueled by price insensitive buyers, mainly corporate repurchases (70%) and central banking "invisible" put (30%). Private investors have been exiting the markets since mid 2007 tocover for their pension fund's earnings shortfall.



Unless price insensitive buyers stop bidding equities, markets will keep climbing no matter how outlandish the valuation metrics become under historic perspective.



ZIRP enables corporate repurchases. The other side of the ZIRP coin is the earnings shortfall in the pension funds, who obviously invest a majority of their AUM in fixed income, however low yielding. Mandatory.



Pension funds need an annual average of 6,6% income growth to pay for their promises. Over the last decade, they are getting less than 0,5%. Millions of retirees need to cover for this shortfall in their pension funds, and sell their financial assets, littl by little. It will become structural and widespread, as demographics will further strengthen in this direction (more retirees needing additional funds, and less working people saving for retirement).



These are price insensitive sellers. who will inevitably collide with price insensitive buyers. To keep the markets climbing under such circumstances, central banks will need to push the long end of the curve into outright nominal negative rates (forget about stories of people stashing cash in the mattress).



They would need to print dozens of trillions annually to get the US 10Y Bond into -1% or lower. Which will further reinvigorate the pension funds earnings shortfall. That central banking-induced liquidity will have disastrous consequences for asset prices.



Under that scenario, once nominal rates sink into negative for the long end of the curve, pension funds will have to liquidate all their fixed income assets at any price, fast and furious, because under nominal NIRP, the longer you hold the bonds, the more you lose, the earnings shortfall morphs into savings destruction. Enticing?



This is unavoidable.



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By December 2018 the tapering Fed will have drained 500 billion in liquidity.

By then, the US fiscal deficit will be north of 1 Trillion.

Best case scenario, someone has to step in big time and buy 1,5 trillion in low-to-no yielding bonds.



Logic tells me the equity market is close to experience a short lived (but steep) selling momentum for the panicky herd to scramble for 1,5 Trillion of pestilent no-yielding "risk free" bonds.



Then the Fed will be justified to reverse course and drive rates negative, which will make the abovementioned scenario a live phenomenon, and THAT one will be the real bear that no one dares to imagine.