Negative Interest Rates Are Extremely Toxic
Jim Bianco, President of Bianco Research, cautions against evermore unconventional monetary policy interventions. He fears that the global slowdown is going to get worse and he spots opportunities in long-term bonds and gold.
The global economy is on the brink: Europe is headed for recession, Japan as well and China’s growth rate is the slowest in almost thirty years. Only the economy in the United States seems to hold up. But for how long?
Mr. Bianco, the summer is basically over and we are heading into the final stretch of the year. What’s ahead for the financial markets in the coming months?
There are two issues at play: First, the trade and currency wars where the situation reminds me somewhat of «This Is Spinal Tap». It’s a cult satire movie from the eighties about a rock band and they coined the phrase «up to eleven» because that’s how high their amplifier went. So the expression «turning it up to eleven» refers to the act of taking something to an extreme. I’m saying this because I think Trump is “going to eleven” on trade: He’s going to turn it up so high that there is going to have to be a deal. That’s the way he wants to do this. He will just make it intolerable so everybody has to sit down and cut a deal.
What’s the other issue?
The inverted yield curve. The three-month/ten-year curve has been inverted since May and this is the market’s way of saying the Federal Funds Rate is too high and must come down. It is interesting how hard everyone is standing on their head to dismiss the yield curve and tell me why it’s different this time.
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