Japan Negative Interest Rates & The Race To The Bottom

Japan negative interest rates

Negative rates are not an issue in Japan, Europe is being plagued with the same disease and eventually, it could infect the whole plant. However, before we get there let’s look at who stands to benefit in this environment that punishes savers and rewards speculators.

The Corporate world will embrace Negative rates with gusto as it will be akin to a crack addict being given a new dose of super crack. History does not change, only the outfits change, but the con is always the same and the ones left holding the empty bag are the sheep (otherwise known as the masses).

The Fed is trying to put on a brave act, but you can already see them backtracking from the strong stance they took last year. Now they are stating that all is not well, and the economic outlook is weaker than expected. They will have no option but to join the rat pack, however, that was their intention all along. Moving slower than the rest of the world creates the illusion that the dollar is stronger and in the race to the bottom, the objective is to finish last instead of first.

Japan negative interest rates: Interest Rates Are Manipulated

The markets are totally controlled and manipulated; every boom and bust cycle was planned in advance of the event. The chart below illustrates that the economy is far from healthy, in fact, it appears to be almost in a coma and is being forcefully kept a life through immense injections of hot money. Take away the hot money and this illusory economic recovery crumbles; if a market is healthy the velocity of money increases and vice versa. Look at the chart below, the velocity of money is dropping like a falling dagger.

Share buybacks setting new records every year

Last year share buybacks and dividends payments surpassed the one trillion dollar mark, this year they will probably surpass that level.

Companies in the S&P 500 Index are poised to purchase over $165 billion of stock this quarter, bringing them dangerously close to taking breaking the 2007 record. We are only talking about the S&P500 and not the entire market. Last year share buybacks totalled $1 trillion. This year they will probably surge beyond that mark and congress is not going to do anything to stop this as they are making a boatload of money too.

“Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

“Corporate buybacks are the sole demand for corporate equities in this market,” David Kostin, the chief U.S. equity strategist at Goldman Sachs Group Inc., said in Feb. 23 Bloomberg Television interview. “It’s been a very challenging market this year regarding some of the macro rotations, concerns about China and oil, which have encouraged fund managers to reduce their exposure.” Full story

Negative rates have already fuelled a property bubble in Switzerland and this bubble will spread everywhere

However, the biggest bubble will probably be corporate debt as U.S corporations will go on feeding binge once rates turn negative.

Japan negative interest rates may have backfired

When the Bank of Japan announced its plan to move to negative policy rates in 2016, inflation expectations actually fell rather than rose as policymakers had hoped, researchers at the San Francisco Fed wrote in the bank’s latest Economic Letter.

Although the decline might have been a response to the deteriorating economic conditions that prompted the BOJ’s move rather than to the move itself, “the reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels,” they wrote.

Fed policymakers have struggled with low U.S. inflation, cited as one of the reasons why they cut rates last month for the first time in more than a decade. Monday’s research may add to arguments for “preemptive steps” to avoid allowing rates to fall near-zero levels in the first place, the economists wrote. Full Story

Random Thoughts on The Stock Market Sept 2019

Market Timing works, but what most people label as Market Timing we would label as insanity. Experts are hoping to identify the exact top or bottom, and this is precisely why market timing does not work. Emotions cannot be timed using mathematical models or theoretical constructs, as they are not based on logic. The focus should be on identifying topping and bottoming action and not trying to determine the exact top or bottom. Only fools attempt to do what history has proved over and over again as being impossible

Long Term Outlook Unchanged

This market correction should be a short term aberration unless we have a black swan type event and nobody can predict those, hence the title. However, even if that were to occur (black swan event), we would view it as a fantastic buying opportunity the markets were pushed to even lower levels. Why would we take this stance? The trend is still positive, and until it changes, corrections should be embraced. The only change in strategy is that we would use our technology tools and risk to reward models to fine-tune our entry points.

Neutral sentiment is close to hitting 50, and on the monthly charts, our technical indicators for all the major indices are trading in the extreme to insanely oversold ranges. These two developments signal that the Dow could strike 30K a lot faster than even the bullish dreamers could envision.

Negative Rates Update April 2020

unprecedented situations require unprecedented actions. That’s why the U.S. Federal Reserve should fight a rapidly deepening recession by taking interest rates below zero for the first time ever.

When Fed officials hold their regular policy-making meeting next week, all the lights on their dashboard will be flashing red. The unemployment rate is expected to reach double digits by June. With global demand cratering, the Fed’s preferred measure of inflation will likely fall to 1% or even lower by the end of the year — well below its target of 2%. And in the absence of a Covid-19 vaccine, the malaise will likely persist well into 2021.

Any Economics 101 student knows that in such a dire situation, the central bank should cut interest rates to stimulate growth and job creation. But as Chair Jerome Powell reiterated last month, the Fed doesn’t plan to do so in the foreseeable future, because a further quarter-percentage-point cut would drive the interest rate it pays on banks’ reserve deposits into negative territory. yahoo