What the hell is going on in the bond market?
- Thread starter RGLD
- Start date
day traders will be over joyed!
By doing so the ECB basically followed the example as set by Japan's BoJ. They already had negative interest rates for a longer time, and are trying their best to avoid that the JPY gets too strong against the USD.
Well, there are of course bad consequences to negative interest rates and if left to persist it will hurt an economy [especially banks and financial institutions because they still depend mightily on customer savings accounts].
That is total bollocks. Neither the secret agenda nor the openly expressed interest of ECB is to devalue the euro and thus compete on trade. That has never been the mendate of the ECB and neither is it the mendate Fed. If you choose to be a conspiracy theorist then that is your prerogative yet your belief does not reflect the truth. Fact is that ECB is embarking on a QE program to pump liquidity into the market to support struggling economies. Last time I checked Europe was not on a too solid economic footing. And the main tools are lower rates and asset purchases. The facts and your opinions are not the same.
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And your buying power increases tremendously. You conveniently forgot to mention that. Or are you personally an exporter?
Look at the Dollar Index long term - past five years. That’s what happens when the US is raising rates and the rest of the world is either cutting rates into negative territory - or in the case of China just outright using a Government Currency Desk to peg the Yuan to the Dollar.
And btw - the German Schatz (2 Year) is yielding -0.89%.
The US exported $5.6T in goods last year - just behind China then the EU. And when the Euro depreciates 10% versus the Dollar over a period of several months in 2018 RAISING INTEREST RATES SLOWS EXPORTS. In other words, if the Fed’s raising rates and the rest of the G-7 is aggressively lowering rates - the Fed could possibly bring on a recession at worst or at the very least cut US exports by hundreds of billions per year.
And yet Japan is an export powerhouse, in the top three in almost every high tech sector, cars, video consoles/games, porn,... It's a bogus argument to always blame a strong currency for struggling exports. Sometimes it's the shitty product that is at fault. Or is anyone arguing that American beef or all this GMO infested agricultural shit is desired by Japanese and Europeans?
I agree with you that Japan's BoJ primary objective was not to improve or support Japan's export. Its first objective is to reach an inflation level of about 2%. This made them go as far as negative interest rates and they started a buying spree of bonds and equity. Until now have they not been able to achieve that inflation target, even though they are trying for quite a number of years (10 years by now?, I lost count). By now has Europe's ECB copied some of their tactics (negative interest rates, buying of bonds), and the interest rates in the US have come down a lot since a decade ago. This makes the JPY stronger than the Japanese would like it to be, as many Japanese companies base their budgets on an exchange rate of approximately 110 JPY/USD. If the JPY gets stronger than that for a longer duration this will affect the profitability of the Japanese companies substantially.
Did you check dollar yen post 2008? Yet many Japanese companies still turned a healthy profit. I strongly believe the number one aspect of a solid and long term profitable business is a high quality, durable, and well designed product. Take a look what kind of cars Audi, Porsche, BMW, and Mercedes are pumping out year after year. The US can put up as many tariffs they want and the Euro can go down or up and yet all the above car makers will make healthy profits. On the contrary, you can save and rescue Ford and GM as many times as you want and yet they make shit products (mostly) and will struggle time and again. It's the product that is key not the exchange rate or other macro factors.