The Coming Rate Hike
Reasons why the Fed's coming rate hike will lead to a period of, to put it mildly, volatility which "will mark the beginning of the end of massive monetary easing and a collapse of interest rates to effectively zero across the globe, and follows a humungous bull market in both equities and credit in the past 6 years:"
- Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan
- Central banks have cut interest rates 577 times since Lehman, a rate cut once every three 3 trading days
- Central bank financial repression created $6 trillion of negatively-yielding global government bonds earlier this year
- 45% of all government bonds in the world currently yield <1% (that's $17.4 trillion of bond issues outstanding)
- US corporate high grade bond issuance as a % of GDP has doubled to almost 30% since the introduction of ZIRP
- US small cap 5-year rolling returns hit 30-year highs (28%) in recent quarters
- The US equity bull market is now in the 3rd longest ever
- 83% of global equity markets are currently supported by zero rate policies
Put simply, central bank's provision of liquidity for financial markets has been unprecedented. The extent of Wall Street addiction to liquidity is about to be revealed and the potential for unintended consequences is clearly high.
Inadequate attention is being paid to the risks of a downturn in which central bankers' abilities to ease are significantly impaired. !!!!
If the S&P is cut in half the Fed will launch not just QE4, but 5, 6 and so on, resulting in every other central bank doing the same as global currency war goes nuclear, and the race to the final currency collapse enters its final lap.