Global Finance: Central Bankers =======

By pjain      Published Sept. 25, 2019, 4:37 p.m. in blog Invest   

Central banker Key Factors and Distortions

Insanity of Central banker distortions

Tariffs - Trade-War could cause Great Depression #2

  • A 25% tariff on $600 billion of Chinese imports is an increase in costs of $150 b out of a $20 T - i.e. only 0.75% inflationary impact, but about two-thirds of that would be eaten up by corporations, improved cost cutting, and advance inventory piling up.

  • The Trump Tariffs > The Trump Tax Cut on an annual basis. The DROP if tariffs take effect would wipe out 2018 tax cut benefits!

  • Many goods have elastic demand and tariffs can trigger a sharp drop in demand.

  • Multiplier effect of tariffs on basic and intermediate goods may be magnified over the production cycle.

  • Smoot-Hawley. Want to stop the world economies from imploding stop with the tariffs and quotas. A 2% Treasury is not a cure but a symptom of things gone wrong.

US Fed cuts 1% by end 2020 to reelect Trump

  • Lost the oomph - after 10yrs of lowering rates
  • Stock Markets <- CFO's engaged in financial engineering of the balance sheet, leveraging and buybacks - keeps EPS
  • keep zombie cos like fracking alive with low rate financing made available for extended periods of time.
  • CDO machine works off low rates
  • Bond speculators - holding 4% 30yr see 2x as go <2%
  • Home borrowers remortgaging their homes to benefit - but now ARM 5/1@3.5% ~30yr - so after costs - not much benefits

Inverted Rates - used to be 100% indicator of Recessions!

The yield curve is primarily inverted because there are $15 trillion in negative yields govt bonds. This drives up the price of our bonds primarily the long bonds there is an increase in demand from those fleeing negative yields. No recession in sight.

  • Foreigners seeking higher returns must either a) hedge their currency risk or b) accept potentially large translation losses. Hedging will eliminate most, if not all, of the yield pick up. Currency levels are not primarily determined by interest rate differentials in anything but the very shortest of terms making the naked trade a poor gamble for such a small reward.

The theory is that inverted yield curves do cause recessions because banks borrow short term and lend long term. If they can't do that profitably they then stop lending, credit stops expanding, and the economy shrinks.

Oil prices falling - Indicate recessions!

  • Basically low economic demand - oil used for transportation - less => less economic activity

Only speculators buying negative debt!

Clearly, no one intends to hold a 30-year negative-yield bond to maturity. Losses will be both steep and sudden should yields rise.

At some point the bond market is guaranteed to blow up. Timing the point is difficult.

  • Traders have been betting against Japan for two decades, incorrectly. BoJ just keeps doubling down on its bets. Its current account surplus lets it get away!

Debt is so high - Fed is stuck with Super low Rates

  • US capital inefficiencies
  • 1984 it took $1 of additional debt to create an additional $1 of Real GDP.
  • 2013, it took more than a dollar of public debt to create a dollar of GDP.
  • 2018Q4, it took $3.8 dollars to create $1 of real GDP.

  • Interest burden at various rates - with a $20T gdp and $70T of total debt Rate | Interest | % of GDP/yr 3 %| $2.1 t | 11% 2 %| $1.4 t | 7% 1 %| $0.7 t | 3.5%

Central Bank Balances total $22 T but declining, yet 2020 not-QE repo

A desperate attempt by central banks to keep the wheels from coming off the bus has been interpreted by many as confirmation the current trend of never-ending growth will continue.

  • Here it shows significance of balance sheets of GDP

ZIRP in 2020 = New asset bubble! Inflation is >5%/yr

  1. To keep economy chugging would trigger asset inflation to a new bubble level = A new bull market

  2. If Trump re-elected, Fed could cut the interest rate to Negative and institutes Negative rate mortgage, which will launch a new bull market on Everything.

  3. In reality, the Fed produced massive inflation but does not know how to measure it. Inflation is readily see in junk bond prices, home prices, equity prices, and credit expansion.

  4. In particular, wages have not kept up with house prices - and ZIRP'20 would cause another price up?

  1. Deflation is NOT that bad! BIS study, please seeĀ Historical Perspective on CPI Deflations: How Damaging are They?

Monkey Elites in Charge - Developed world goes to long term negative Debt - since it can!

We have idiots running our governments who will pull any available lever that they have over the economy in order to keep themselves in power, even if it ultimately destroys that very same economy. Keynesian economics was only intended to minimize business cycles, not to eliminate them!

  • As of Aug end 2019
  • exUS - 44% of global bonds have negative yields!
  • Japan has 43% of negative debt, Europe has 45%
  • Gilts are 73.5%, and other Govt 12.5% ie ~85%.

Developed Central Bankers Cases

US FED is a global Controller

BoJ

Currency Wars!

super low interest rates are also a symptom of a currency war

ECB - Aging Rapidly, NPA, Brexit killing EU concept

  1. The ECB mistake. Whereas the the Fed bailed out US banks by paying interest on excess reserves, the ECB contributed to the demise of European banks, especially Italian banks and Deutsche by charging them interest on excess reserves that it forced into the system.

  2. The demographics in Europe and Japan are worse than the US.

  3. EU itself no longer tenable, Brexit will drop a house on the ECB and others will vote to leave when they see Britain surviving.

  4. Internal instability PIIGS v2.0 Defaults threatened - Unstable coalitions like Italy show populism is very much alive!

  5. Liberal-socialist France could implode: At least when France sheds it's illusion that it is a co ruler of the EU with the ECB/Germany.

Currency Wars!

super low interest rates are also a symptom of a currency war


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