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A quick question for the “recovery” enthusiasts…
If the recovery is real and as strong as the “data” suggests… why are
Central Banks engaged in the most aggressive stimulus in history?
Consider Europe.
According to the official data, the EU’s Services and Manufacturing PMI’s
were 53.1 and 51.8 in August. Both were significantly above 50 (which
represents contraction)…
Moreover, the EU’s inflation rate has risen over 0.4% in four months, rising
from -0.2% in April to 0.2% today.
And yet, despite this data, the ECB continues to hold interest rates at
-0.4% while also spending €80 billion per month in QE
(the equivalent of $90 billion). At this pace, the ECB will spend nearly €1
TRILLION IN QE PER YEAR.
Put another way, the ECB is engaged in the most aggressive monetary policy
in its history (even more aggressive than at the heart of the 2012 EU banking
crisis) at a time when the EU economy, according to official data, is well
above contraction.
Then there’s Japan.
According to the official data, the Japanese economy has “bounced back”
and avoided recession, posting a growth rate of 0.5% in 1Q16.
Granted, this is not great, but it’s much better than the -0.4% growth
rate for 4Q15.
On top of this, while Japan’s August Manufacturing PMI was 49.3 (just
below contraction levels) it has been rising for the last three months from
the low of sub-48 back in May. That same month Services PMI broke above
contraction levels to 50.4.
Despite this, the Bank of Japan maintains interest rates at -0.1% and is
currently spending nearly $800 billion per year buying assets. Astoundingly,
the BoJ is actually buying all of Japan’s new Government debt
issuance per year.
It is also is a top 5 shareholder for 81 of the 225 companies trading on
the Nikkei 225. And it owns 60% of the Japan’s ETFs.
Put another way, like the ECB in Europe, the BoJ is engaged in the single
most aggressive monetary policy in its history… at a time when,
according to the data, Japan is NOT even in a recession.
Looking at this, it is obvious that something is very wrong. Either the
data is inaccurate, or Central Banks know something we don’t. After all,
they’re behaving as if they’re absolutely terrified at a time when the data
is claiming their economies aren’t even in contraction!!!
Just what are they scared of?
We firmly believe the markets are preparing to enter another
Crisis. With over 30% of global bonds posting negative yields, the financial
system is a powder keg ready to blow.
The Bond Bubble is THE bubble. And with over $555 trillion in derivatives
trading based on bond yields, this bubble is over 10 times the size of the
one that nearly took down the system in 2008.
We are already preparing our clients for this with a 21-page investment
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