- The Japanese yen (110.50 today) is strengthening versus the US dollar (52 week range 110.27 – 125.86) and the yen is typically viewed as a safe haven currency during market uncertainty and turmoil.
- The 10-year US treasury yield (1.74%) is lower (30% from it’s June 30th 2015 peak of 2.50%) even as inflation expectations are picking up. Safety is being sought as yields drop.
- Gold (1220.50) is, and has been rising, since December and now stands nearly 21% higher. Gold is also a safe haven for investors.
- Central bankers are using negative interest rates as a policy tool. Disaster.
Am I missing something here? Why are these 4 (should we add in oil as a fifth?) indicators painting such a negative picture and the world is just shrugging with acceptance? These 4 macro measures of the health of the investment community are not good. They are each, on their own, somewhat interesting, but together, these smell like the tin of tuna in the back of the fridge that was forgotten about months ago.
Is the market sentiment just giddy enough with the prospect of lower rates for longer to ignore these ‘crises’ oriented trades? What about negative rates? Who can really say that things are rosy and the future is bright when the governments who supposedly have their hands on the economic steering wheel are ostensibly taxing our savings? Negative interest rates are the result of previous failed policies, plain and simple.
Am I the only one who thinks that negative interest rates are a huge red flag? Is it that we are all used to having lower rates to prop up the equity markets so negative rates will eventually see even higher equity prices and things are OK? Are things really OK? Really? Are they?
I’m not predicting an equity correction or another Lehman moment but I can’t help but feel that all is not right in the world and everyone is wishing/praying/hoping that everything is eventually going to be ok. Q. How are negative interest rates and Viagra alike? A. Regular usage creates a belief of overcoming your challenges.
Challenges remain everywhere in the global economy and positive outcomes from central bank policy tools are, and never have been, guaranteed. Should the yen, treasuries, and gold continue to rise, don’t be surprised that danger is on the horizon.