Pyramid of assumptions
I find some of the recent analysis of US politics and its implications for financial and commodity markets, rather amusing. Most experts are presenting their prognosis of the future direction of asset prices (stocks, currencies, bonds, gold, oil, and other commodities) based on an upside down pyramid, with politicians and central banks as the primary basis of their assumptions. The overly simplistic analysis indicates that the new US government will have to find a balance between the cost of servicing monstrous public debt (interest rates) and growth. The growth will look healthy in 2021 as the poor base effect kicks in; and so will the inflation. This shall prompt the Fed to normalize the policy rate to bring benchmark 10yr yields from present 0.95% to pre Covid level of 2.5%. This rise in yields will make the servicing of burgeoning debt extremely difficult, if not impossible. The Fed will therefore be forced to check the benchmark yields below the pre Covid levels, say at 2%....