TRENDSETTING
The old line, “recession doesn’t kick in until after the last rate rise” certainly doesn’t look like it will apply to Australia this time round.
Indigestion from too much debt makes a rate rise in Australia so remote, it would take some type of unexpected hyperinflation to trigger.
The US Fed reserve’s determination to continue to raise rates until something breaks makes it interesting to ponder why the US Fed doesn’t consider its countries own indebtedness in the same vain.
In fact, the whole debt situation leads one to ponder if the GFC was a garden variety correction rather than (in the words of John Mauldin):
The Great Depression was a soul-searing, generational-impacting event. The events around 2008, bad as they were, had nowhere near that effect.
In hindsight, low and zero interest rates of the last 9 years just encouraged all entities that didn’t have “enough” debt to take on as much as they can so that the next event will be more like the soul searing, generational impacting reset that has been a regular feature of economic history.
More and more, in the world of elite “independent” economic opinion leaders and fund managers, this is being discussed with greater intensity.
So it was fascinating listening to Stanley Druckenmiller, a legend among legends in Funds Management, sit through a 90 minute interview on RealVision last week.
His incites are highly sort after and rarely public.
Let’s look at some of his key points on current markets.
1. “It’s always about liquidity”. Yep, so we remind you below just how important the central Bank “Put” has been over the last 8 years, now that its leaving.
2. “One of these hikes is going to trigger this thing”. Referring to the continued commitment of the US Fed Reserve to raise rates.
3. He went on to comment that he went short in July, believing that market would get that the combination of rising rates and removal of central bank liquidity would have its effect sooner than now!
4. As a result of this continued commitment and investor complacency in the face of potential turmoil the above may deliver on the back of the largest debt servicing requirements, ever, he is ready to take a “big shot” either side of the next rate rise in December, if not December, January with more certainty.
5. “Triple red alert is where I’m at now”.
But hey, enough of the negatives!!
On a positive note, once the rot sets in again, you know what the fix will be. So, here’s some news from the Japanese Finance Ministry as the BOJ balance sheet ticked through 100% of GDP and, as a result of its Equity ETF purchases, is now in the top 5 shareholders of many Nikkei Composite participants.
Just imagine the Reserve Bank of Australia popping up in CBA’s top 5 shareholders right now!
A Bloomberg dispatch from last Monday underscores the broad scope of the central bank’s strategy:
The BOJ aims to keep the yield on 10-year Japanese government debt around zero percent as it tries to stimulate price growth in the economy by controlling both short and long-term interest rates.
Indeed, during a March committee meeting of the Japanese lower house, BOJ deputy governor Masazumi Wakatabe bluntly declared: “There are no limits to monetary policy.”
So, here’s Japan. For the first time in history, a central bank has managed to print enough money to buy enough assets to surpass the nation’s annual GDP.
And the good news is, once the shit hits the fan again, the ECB and US Fed have a long way to go to catch up. See, we told you good news was on its way.
But wait, is this good news? Guess you’ll have to wait and see. The Japanese certainly have their own peculiar way of doing things.
Want more evidence of over-leverage?
Never more borrowed to invest in the US.
With corporate debt so high, what have corporations been doing with the money?
Buying their own stocks, of course. How else would you get a stock price related bonus?
At least in Australia people have been buying property like Crazy, not silly stocks. According to the Daily Mail Australia, credit card bills, home mortgages, and personal loans now account for 189 percent of an average Australian household income, compared with just 60 percent in 1988:
How will this look in 10 years? Global GDP contribution courtesy of Infographics.com
Let’s not put those Christmas decorations up too early this year. Spoils it.
