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“We’re Never Going To Go Away From Zero:” Presenting Kyle Bass’ Latest Trade
“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.
Japanified World Ahead
Japanified World Ahead
Losing Decades
Too Much, Too Fast
A $10 Trillion Federal Reserve Balance Sheet
Mastering Private Markets
Living on Puerto Rico Time
Regular readers may have noticed me slowly losing confidence in the economy. Your impression is correct and there’s a good reason for it, as I will explain today. The facts have changed so my conclusions are changing, too.
I still think the economy is okay for now. I still see recession odds rising considerably in 2020. Maybe it will get pushed back another year or two, but at some point this growth phase will end, either in recession or an extended flat period (even flatter than the last decade, which says a lot). And I still think we are headed toward a global credit crisis I’ve dubbed The Great Reset.
What’s evolved is my judgment on the coming slowdown’s severity and duration. I think the rest of the world will enter a period something like Japan endured following 1990, and is still grappling with today. It won’t be the end of the world; Japan is still there, but the little growth it’s had was due mainly to exports. That won’t work when every major economy is in the same position.
Describing this decline as “Japanification” may be unfair to Japan but it’s the best paradigm we have. The good news is it will spread slowly. The bad news is it will end slowly, too.
I believe we will avoid literal blood in the streets but it will be a challenging time. We’ll be discussing how to get through it more specifically at the Strategic Investment Conference next month. It is now sold out but you can still buy a Virtual Pass that includes audio and video of almost the whole event. Click here for information.
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The Japanification of the World
The Japanification of the World
Zombification / Japanification is not success; it is only the last desperate defense of a failing, brittle status quo by doing more of what’s failed.
A recent theme in the financial media is the Japanification of Europe.Japanification refers to a set of economic and financial conditions that have come to characterize Japan’s economy over the past 28 years: persistent stagnation and deflation, a low-growth and low-inflation economy, very loose monetary policy, a central bank that is actively monetizing debt, i.e. creating currency out of thin air to buy government debt and a government which funds “bridges to nowhere” and other stimulus spending to keep the economy from crashing into outright contraction.
The parallels with Europe are obvious, but they don’t stop there: the entire world is veering into a zombified financial, economic, social and political status quo that is the core of Japanification.
While most commentators focus on the economic characteristics of Japanification, social and political stagnation are equally consequential. If we only measure economic/financial stagnation, it appears as if Japan and Europe are holding their own, i.e.maintaining the status quo via near-zero growth and near-zero interest rates.
But if we measure social and political decay, the erosion is undeniable. Here’s one example. Few Americans have access to or watch Japanese TV, so they are unaware of the emergence of the homeless as a permanent feature of urban Japan. The central state propaganda media is focused on encouraging tourism, a rare bright spot in Japan’s moribund economy, and so you won’t find much media coverage of homelessness or other systemic signs of social breakdown.
If you watch Japanese detective / police procedural dramas, however, you’ll find constant references to homeless people and homeless encampments: detectives seek witnesses to a crime in the nearby homeless encampment; a homeless man living in an abandoned warehouse is found murdered, etc.
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