WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
Watch for the crowd in today's market...
Don't look now... 'NIRP' is back in the headlines... Negative interest-rate policy (or "NIRP," for short) is like capitalism turned upside down... Instead of being paid to save capital, you're charged a fee to keep the money you've already earned. At its core, NIRP is government theft with a complicated name. A handful of European central banks adopted this perverse form of monetary policy a few years back. It began to gain widespread favor in late 2015. And while short-term rates remain at zero or below in much of the developed world, most folks believe the NIRP "experiment" is largely in the past. But there's a small but growing chorus of economists and government officials who believe NIRP will be – even should be – the preferred tool of central bankers when the next slowdown arrives. We believe it is only a matter of time before the "Melt Up" ends and the market meltdown begins. This suggests that when it does, NIRP could resume its spread almost immediately.
The most popular recent winning trade is the so-called "FANG" stocks – Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) – and other similar technology and media plays. Today's market is very reminiscent of the big tech and telecom boom of the late 1990s. Instead of worthless dot-com companies, today's debt bubble is pushing up worthless "virtual currencies" – hundreds of them. The outcome will be the same... Most investors buying the FANG stocks for the first time today and those buying virtual currencies are going to take a beating. Just like folks who piled into tech stocks in 1999... and just like folks who piled into real estate and commodities in 2007. Investing late isn't smart. Investing late into what's wildly popular is deadly. We can't tell you when the punishment will start. But we can tell you how it will finish.
12 | September 2017
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