It’s early Monday morning – and following Friday’s comically PPT-aided, Japanese NIRP and “possible oil production cut” inspired dead cat bounce” global economic hell has returned with a vengeance. Stocks are plunging; Treasury yields, on average, are at all-time lows – with nearly $6 trillion sovereign bonds trading at QE-to-Infinity-expecting negative yields; and oil is about to breach $32/bbl to the downside; with the only “commodities” going up being – how about that? – gold and silver.
This weekend’s news of China’s manufacturing PMI plummeting to a three-year low; whilst South Korea reported a 19% January export plunge; as Nigeria begged the World Bank for loans to stave off imminent default; served to demonstrate, in spades, that not a thing “improved” because the BOJ reduced its benchmark interest rate from 0.0% to
-0.1%. Frankly, the fact that BOJ Governor Haruhiko Kuroda, last week, said he was NOT considering negative rates, should shake the world’s collapsing monetary establishment to its core – as either he was lying, or became significantly more terrified in the ensuing eight days. By, perhaps, collapsing equity and commodity prices?
In other words, proving, unequivocally, what I have said all along. I.e., the only thing Central banks care about are financial markets – and propping up the historically over leveraged, “too big to fail” banks that live and dies by them. Not to mention, the confidence that stable markets supposedly brings – despite not a shred of spillover to actual economic activity. To the contrary, the “Great Deformation” caused by propping financial markets up with unprecedented money printing, market manipulation, and propaganda has not only catalyzed the greatest economic collapse in history; but, as the historical record will eventually describe, the destruction of hundreds of millions, if not billions, of lives.
As for said “negative interest rates,” consider that the Bank of Japan has been stuck at the “zero bound” since 1996; i.e., 20 years ago. During that time, Japan’s economy has, putting it mildly, stagnated – while its debt-to-GDP ratio exploded from 90% to 240%; and the demographic nightmare that may well land it in second-world status went from bad, to worse, to much worse. Throw in the worst nuclear accident since Chernobyl, and prospects for the “Land of the Rising Sun” haven’t been this bad since the Dark Ages. And yet, despite the abominal failure 20 years of negative rates have been – not to mention, 23 rounds of quantitative easing, in which the vast majority of JGBs (Japanese Government Bonds) have been monetized, and a significant portion of the Japanese stock market. During which, the Yen has been annihilated – with far more downside coming – the Bank of Japan decided, at the behest of its two-time failure of a Keynesian Prime Minister, that reducing rates from 0.0% to -0.1% would somehow “work.”
Sure, the Nikkei has rallied for two days – albeit, “suspiciously” so, given its initial instinct to plunge on the news. However, all the Bank of Japan “accomplished” was an escalation of the “final currency war” I warned of three years ago – past DefCon1, to my newly coined “DefCon0” level. Clearly, such a move reeked of pure, abject desperation – particularly as the BOJ admitted last week that further QE rounds may not be practically possible, given that there is almost nothing left to monetize. Hence, negative interest rates; which screams to “competing” Central banks – particularly the aggressively devaluing PBOC and ECB – that Japan will NOT allow the Yen to materially rise, no matter how much it destroys its rapidly aging citizenry.
Of course, per the title of today’s article, we are talking about a change of just 0.1%. Which, be it positive or negative, is as infinitesimal, and immaterial, as any policy change imaginable. I mean, it will literally do NOTHING to help the Japanese economy. Other than, that is, to generate Central-bank funded speculation of the global QE to Infinity we all know is coming. Heck, even leading “TBTF” bank Citigroup, this weekend, noted how all prior instances of negative rates have failed, yielded NOTHING incrementally “positive” except additional rate cuts.
“Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact – as no country that has gone into negative rates has experienced major shifts in its growth and inflation profile. Consequently, every dip into negative rates has been followed by additional moves.”
Conversely, the Federal Reserve executed the worst “policy error” in Central banking history six weeks ago – or, as I described it three months beforehand, the “only financial event as potentially cataclysmic as a significant Yuan devaluation” – when it raised rates by an equally insignificant 0.25%. Which, as I anticipated, launched the current, massive leg down in the global economy and financial markets. Again, such a tiny, completely meaningless nominal amount. And yet, look at the carnage it caused – as the surging dollar has literally annihilated already imploding currencies, commodities, high yield bonds, and U.S. corporate earnings. And heck, political, geopolitical, and social stability.
Which should make everyone realize just how fragile the global economy has become – and how prone financial markets, of all kinds, are to sudden, sharp implosions. I mean, consider what would have happened if last week, instead of dovishly suggesting further rates hikes were off the table, the Fed has “stuck to its (moronic) guns” by insisting further (equally infinitesimal, quarter point) rate hikes were imminent. Unquestionably, a 1929-like event may well have ensued. Not to mention, low $20s oil, a dollar index at or above 110; and generally speaking, all-out financial chaos. And likely, exploding gold and silver prices – if this month’s patently obvious “safe haven” buying is any indication.
My friends, we are on the cusp of an historic event of financial infamy – the likes of which has never been witnessed; and likely, never again will. Its arrival is all but guaranteed, with only the timing and scope remaining in question. And the fact that events as trivial as “0.1%” interest rate changes – either up or down – may well be the catalyst, shows you that history’s largest fiat Ponzi scheme, now in its deadly terminal phase, is being held up by a handful of snowflakes on a mountain on the cusp of an avalanche. Frankly, how anyone can NOT consider protecting their life’s savings with at least a modicum of the only asset class proven to survive such epochal storms – i.e, physical Precious Metals – is beyond me. But hey, if there’s one thing I’ve learned, it’s that the “sheep” are always slaughtered. Always, every time.