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Negative Interest Rates Are Extremely Toxic

August 29, 2019

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.

 …click on the above link to read the rest of the article…

Inverted Global Yield Curve Creates “The Perfect Cocktail For A Liquidity Crunch” As The IMF Warns Of “A Second Great Depression”

October 7, 2018

Inverted Global Yield Curve Creates “The Perfect Cocktail For A Liquidity Crunch” As The IMF Warns Of “A Second Great Depression”

Why would the IMF use the phrase “a second Great Depression” in a report that they know the entire world will read?  To be more precise, the IMF stated that “large challenges loom for the global economy to prevent a second Great Depression”.  Are they saying that if we do not change our ways that we are going to be heading into a horrific economic depression?  Because if that is what they are trying to communicate, they would be exactly correct.  At this moment, global debt levels are higher than they have ever been before in all of human history, and in their report the IMF specifically identified “global debt levels” as one of the key problems that could lead to “another financial meltdown”…

The world economy is at risk of another financial meltdown, following the failure of governments and regulators to push through all the reforms needed to protect the system from reckless behaviour, the International Monetary Fund has warned.

With global debt levels well above those at the time of the last crash in 2008, the risk remains that unregulated parts of the financial system could trigger a global panic, the Washington-based lender of last resort said.

And the IMF report also seemed to indicate that global central banks were responsible for the situation in which we now find ourselves.

In the report, an “extended period of ultralow interest rates” was blamed for “the build-up of financial vulnerabilities”…

The IMF Global Financial Stability report read: “The extended period of ultralow interest rates in advanced economies has contributed to the build-up of financial vulnerabilities.

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Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start

June 28, 2018

Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start

Expected timing: this Fall

Collectively, the world’s major central banks have pumped $1.1 trillion into the markets over the past year.

The result of all this money printing is now well known: massively inflated real estate, stock and bond asset price bubbles, as well as extraordinary wealth and income gaps across society.

Some day all of this insanity will end. But how? Will it unwind in an orderly and polite way, as the world’s central planners hope? Or will be disorderly, resulting in painful portfolio losses and mass layoffs?

Michael Pento, fund manager and author of The Coming Bond Bubble Collapse returns to the podcast this week to offer his prediction that events will most likely take the latter route. In fact, he sees the developing inversion of the yield curve as a dependable precursor to the US economy entering recession as soon as this Fall:

The Fed is now raising rates. They raised rates from 0% up to 2%. They’re supposed to do it again in September/October. And again in December. That will be four hikes this year.

They are also selling assets, aka ‘draining their balance sheet’. I say ‘selling’ because that’s exactly what they have to do. Let’s say the Fed is holding a 10-year note that’s due: if they want to destroy that money, they say “OK, Treasury, give me the principal”. The Treasury doesn’t have any money so it has to go the public and raise money. Well, the Treasury will have to do that to the tune of $50 billion per month come October. Right now it’s $30, it has to go in July to $40 billion a month then it goes to $50 billion. That’s $600 billion a year added to the public supply of Treasurys they have to actually finance at a market rate. That’s on top of the $1.2 trillion debt we’re going to have in fiscal 2019.

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