“We’re Never Going To Go Away From Zero:” Presenting Kyle Bass’ Latest Trade
Here at Zero Hedge, we’ve dedicated plenty of attention to signs of “Japanification” in European bond markets…
… with the issue taking on even more urgency now that we have influential bond strategists earnestly advocating the purchase of equities by the ECB, and the Fed in the middle of a policy U-turn that has prompted the market to price in at least three interest rate cuts by the end of the year…
…previously “conspiratorial” ideas like the Fed buying equities to turbocharge its stimulus program are beginning to look eminently plausible.
For readers who are unfamiliar with the term, “Japanification”, also known as Albert Edwards “Ice Age” concept, it involves the dawn of a new economic paradigm characterized by stagnant growth and pervasive deflation, where central bank debt monetization is needed to finance public spending to keep economies from sliding into contraction.
Already, there’s reason to believe that both the US and Europe are heading for the same monetary policy trap as Japan. Case in point: the neutral rate – or r*, as the economists at the Fed like to call it – has failed to revert back to its pre-crisis level.
And with the Fed likely to cut rates later this month and global bond yields tumbling to levels not seen in years, if ever, hedge fund manager Kyle Bass has revealed his latest trade in an interview with the FT: Bass is betting that the Fed will slash interest rates to just above zero next year as the US economy slides into a recession, forcing the Fed to restart QE, and possibly even consider more radical alternatives like buying equities.
