When all else has failed, use taxes to influence investment decisions. That, to me at least, seems like the approach that 16 countries that have issued some $8 trillion of debt that are trading at negative interest rates. In effect, tax savings with negative rates to encourage investment in risky assets. Well, that’s the theory behind the negative rates but I’ve never met a tax that achieved the expected outcome. Rather, taxes typically encourage avoidance and reduce the chances of succeeding. Negative interest rates will not reverse global demographic trends (aging) and technological advances (transparency of price). In fact, they will potentially aid in reducing growth in those countries and inflict a cycle of lower growth and persistently low inflation.
- 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.