This is the perfect time to discuss the effects of zero interest rates as it has been 20 years since the Bank of Japan embarked upon the path of crushing interest rates in an effort to jump-start inflation in Japan. This is very important as we enter into the discussions about the potential for negative interest rates in the U.S. while also entertaining the idea that the U.S.’s growing debt pile and deficit have no consequence as long as the government borrows in its own currency and optimizes its printing press.
Posts Tagged ‘ZIRP’
Notes From Underground: Happy Anniversary Twentieth ZIRPiversary, BOJ!
February 12, 2019Notes From Underground: The Magician of Frankfurt Will Be Called to Answer
May 22, 2018We’ve been discussing the problems in the Italian debt market at NOTES FROM UNDERGROUND for many years but with the Five Star/Lega coalition coming into government many of the issues that were once theoretical are now an increasing possibility. The Five Star group is openly proposing a debt restructuring for Italy in the hopes of spurring growth and improving the Italian unemployment situation. Economic growth in Italy has lagged the developed world economies and none more so then its neighbor, Germany.
Notes From Underground: Au Revoir, Marine Le Pen
May 8, 2017Now we can finally put the French elections behind us as its citizens maintained the status quo and elected Emmanuel Macron to a five-year term. Parliamentary elections follow in June but the two main parties, Socialists and Republicans, aren’t expected to face challenges. But, if the more conservative Republicans gain control of the Parliament and the prime minister post it will force Macron to move further to the right-center. If Macron moves away from the Hollande Socialist camp it will result in political protests from the Left. Macron will experience a difficult presidential term if the government is gridlocked by continual demonstrations. The German chancellor is going to ask a great deal from Macron: fiscal austerity, as well as a restructuring of the French domestic economy.
Notes From Underground: Come In, She Said, I will Give You Shelter From The Storm (Bob Dylan)
February 16, 2016It seems that Janet Yellen and Angela Merkel are both under attack for offering to provide shelter. Yellen, for offering to shelter investors, and Chancellor Merkel refugees from war-torn countries. Chair Yellen has sparked a heated discussion about the possibility of negative rates in the U.S. as the Fed tries, yet again, to provide a calm port for debtors being tossed about by the lack of any inflation to relieve the burdens of too much debt. Nothing like a good currency debasement to ease the pressure of debt on a society’s balance sheets. The longer the central banks repress savers without igniting the flames of inflation the more detrimental the ZIRP and possibly NIRP (negative interest rate policy). If savers are receiving nothing on their earnings and inflation is not providing debt relief, the entire financial system seems to stagnate and that is apparently what is happening worldwide. This is the ultimate liquidity trap and the fear of central banks having no answers is at the top of the list of investor concerns. I warned about this possible outcome for many years and now it seems the possibility is becoming reality.
Notes From Underground: A Long Time Ago In A Galaxy Far, Far Away…
December 27, 2015Financial repression was not the ultimate weapon in central bankers’ armories. The light saber was symbolic of market-driven levels of interest rates allowing for a genuine return on capital. The Darth Vader PUT was relegated to the outer rings of the galaxy while the VOLCKER RULE provided the rule of law and prevention of over leverage. Planet Mario was under assault as its storm troopers were defeated by the battalions of the financially repressed. All banking DOVES from the Dark Side were driven off by the foresight and power of the Millennium FALCON. A mechanical droid was given the power over all financial decisions and order was restored to the financial galaxy … in a realm far, far away. The world is calm as the DROID runs off an ALGO relying on the intelligence of an unseen oracle, devoid of emotion (or Yoda). Okay, enjoy the fantasy.
Notes From Underground: “It Was the Best of Times. It Was the Worst of Times”
December 28, 2014As 2014 draws to a close, the financial landscape is definitely a tale of two disparate economies as the U.S. reports 5 percent GDP while Europe struggles to maintain zero growth and avoid “recession.” (I despise the official definition of a recession being two consecutive quarters of negative growth.) In Spain, Italy, Greece Portugal, France and other countries, double-digit unemployment defines a recession and the potential it brings for political turmoil.
Notes From Underground: The FOMC Is a Meaningless Statement
October 29, 2014Why do I say this? As expected, the FOMC ended QE3 and left in the forward guidance of “considerable time.” Some analysts believe that the balance of the statement was HAWKISH because the phrase of “significant underutilization of labor resources” to “underutilization of labor resources is gradually diminishing.” The problem is that Chair Yellen has adopted the Labor Market Conditions Index (LMCI) and its 19 variables so without a press conference or until we read the FOMC minutes we have no basis for the change in “significant underutilization” language. The lack of a press conference left investors dazed and confused because there was no explanation for the Fed’s decision. In September we heard about the headwinds of global slowdowns and a strong dollar, but there is no a word about GLOBAL HEADWINDS in the Fed’s statement.
Notes From Underground: Mama, Don’t Let Your Children Grow Up To Be Global Macro Traders
September 4, 2014Well, NOTES FROM UNDERGROUND gets an A+ for analysis and an F or incomplete for EXECUTION. Caught off guard by Draghi’s timing, the market never provided a rally for the more cautious trader. The euro currency began its break 55 minutes before the official ECB rate announcement as Reuters ran a story revealing the governing board’s discussion of a supposed EU500 BILLION ABS program. A leak during the meeting should provide reason for the ECB to investigate its security breaches and find out who is making money from revealing important information ahead of the governing officials. It must be like Congress, where elected representatives are allowed to be insider traders.
Notes From Underground: A Tribute to Stanley Druckenmiller
July 31, 2014Today’s trade was supposedly a risk on/risk off as all of July’s news that failed to impact the market became relevant today. Argentina, Gaza, Ukraine, Portuguese banks … all these issues became reasons for the 2 percent selloff in global equity markets. The problem with the pundits in search of a correlative rationale failed to find the traditional correlations. The SPOOS sold off forty points and the bonds actually closed lower. The YEN, which has been the safe harbor for global investors, remained unchanged for most of the trading session. GOLD, the ultimate haven, lost $14 and closed miserably for the month. Tomorrow’s GOLD action will be critical as we closed under the 200-day moving average. A CLOSE under 1276.50 after the unemployment report will be the end of my bullish outlook on GOLD until some other technicals provide support.
Notes From Underground: Mr. Natural Says, “It Don’t Mean Sheeit”
April 9, 2014The idea of Mr. Natural, the guru creation of R. Crumb, comes to mind as the analysts ponder today’s release of the March 18-19 FOMC Minutes. The market seemed shocked to learn that the FED had been misunderstood on its intentions to tighten soon after the conclusion of the its tapering program. When are the markets going to stop listening to the self-proclaimed seers of the Fed’s deepest secrets? The FOMC minutes let the financial world know that the summary economic projections (SEP) have as much credibility in interest forecasting as does the man behind in curtain in the Wizard of Oz. I will offer that the market must lean toward Janet Yellen being a labor economist with a strong moral bent of providing the foundation for any person desiring a job have a job. Again, that is a noble stance but not for the Fed chair. The violent move in the YIELD CURVE after the release of the minutes reflected the markets’ misinterpretation of Yellen’s press conference. If the 2/10 curve gets back above 240 basis positively sloped, it will result in a further selloff of the notes and bonds. The FED will err on staying at the ZIRP band until it is certain that the employment situation has dramatically improved. Quoting from the minutes: “Several participants cited low nominal wage growth as pointing to the existence of continued labor market slack.”