The Wall Street Journal reported last week that yet another respected longtime investor was trying to call time on financial markets that are getting stranger by the day. George Soros started trading again, positioning himself for what he expects to be a significant decline in risk markets that he views as highly overvalued.
For his bets to be profitable, however, timing will matter a great deal. And that has been particularly difficult to get right in markets that are so heavily influenced by the words and actions of central banks.
There was further confirmation last week that the improbable and unthinkable can easily become reality in financial markets these days. Interest rates continued to fall around the world, as Germany’s10-year bondclosed just millimeters from negative rates and the average rate on the stock of government debt went below zero for the first time. In Japan, the nominal rate on the 15-year government bond joined its 10-year counterpart in negative territory.
Negative Interest Rates
The cascading decline in yields amplified the recent relentless flattening of yield curves – often a sign of an impending recession, according to historical experiences (though in previous cases, without the degree of central bank involvement that has characterized this period). Still, despite selloffs on Friday, some equity markets, including those in the U. S., flirted with all-time highs and oil had a relatively solid week.
This post was published at David Stockmans Contra Corner on June 13, 2016.
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