Powell to discuss negative interest rates. It's almost as if the powers that be are telling you exactly what is coming down the pike. Negative rates are already a reality in Europe, Japan has had zero interest rates for decades, and China isn't far behind. The one thing that makes me think we may have already reached an inflection point and that it's possible for things to move the other way is the possibility that interest rates have reached their low. What if central-bank intervention has reached its peak and now if things get out of control and interest rates rise, central banks can't control it? The issues in the repo market over the past few weeks are a perfect example of what can happen if things really get messy. The Fed didn't want repo rates to go too high for fear of a freeze in lending, so it intervened. If lending does freeze up, that's when the tide goes out and we'll likely find out which financial institutions are really in trouble. No matter the amount of intervention, the free market eventually reveals the underlying issues. So my big-picture prediction over the next one or two decades is the implosion of central-bank intervention. Whether we are in the beginning stages of it now or the life span has a bit more room to run, it will make for interesting times either way. Central banks have killed volatility over the past 10 years, so a reversion to the mean will bring it back. There will be lots of trading opportunities, if nothing else!
What if central-bank intervention has reached its peak and now if things get out of control and interest rates rise, central banks can't control it?
The more central banks intervene, the more dislocated things become. The more dislocated things become, instability rises. And eventually that's when systems fall apart. This is how economies collapse. What central banks are doing is the exact opposite of the free market... Free markets sniff out ineffective institutions, technology, and corruption, allowing capital to move where it will be used best. The more central banks intervene, the more it hides the underlying problems in an economy and exacerbates the problems, which causes much more instability. That's the exact thing central banks claim to prevent. I'm not the doom-and-gloom, end-of-the- world type... No matter what happens, the sun will continue to rise. But I find it disappointing that the only thing that has mattered for investors over the past decade is what central banks are doing. It's also sad that central banks have destroyed the interest-rate market. God forbid someone just wants to earn 3% to 4% in a savings account and enjoy the time value of money, as opposed to being forced to speculate in the stock market because there's nowhere else to park their hard-earned money at reasonable rates. President Trump recently met with Jerome
32
December 2019
Made with FlippingBook Publishing Software