From Albert Edwards of Soc Gen:
I enjoyed afternoon tea with my fellow strategist Bob Janjuah of Nomura (aka Bob the Bear). When we occasionally meet up, we lie back and look up for a bit of clear blue sky thinking – okay, I know it’s London and the sky is usually overcast, but that sort of fits in with our bear view of the world! Among other things we wondered why no-one else entertains the possibility that rates might bottom at minus 5% Fed Funds in the coming downturn
The next US recession will probably arrive a lot sooner than most investors expect and will likely see more desperate monetary experimentation from the Fed. Bob and I thought that this time we would see deeply negative interest rates in the US (and Europe).Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not – 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come.
And so it came to pass last week – just one negative dot in the Fed policymakers’ projections for interest rates set the markets abuzz that central banks were no longer to be constrained by the zero interest rate bound. The very next day the Bank of England’s chief economist and policy wonk, Andrew Haldane, also raised the possibility of not just negative interest rates, but banning cash if people hoard it in an attempt to attain a heady 0% return – link. Wow, even Bob and I hadn’t thought of that!
Are they really that mad?
