Land of Confusion – Negative Rates May Cause the Phase Transition in Equites

Land-Of-Confusion

QUESTION: 

Marty,

Are not negative rates THE trigger for leveraged investments in stocks etc. ?!

I mean, if to start with they just go 300 – 400 bp negative (for the savers) this means real zero or already also negative rates for debtors. So, perfect for a leveraged boom into any markets, but of course most into stocks ? Or do I see there anything wrong?

J

ANSWER: This can be the real trigger that sets off the Phase Transition in equities. It is once again an indirect tool as always. They will go negative assuming you will just recklessly spend all your savings, but they cannot grasp the fact that instead of buying junk, you withdraw money from the bank and buy good yielding stocks. This is likely to also reduce the bid for government bonds and double back forcing rates to rise since government just always spend regardless of the economic trend. It is hard to imagine how they will sell long-term debt at a reduced rate below dividends on the Dow Industrials for example or issue short-term paper negative. This is more likely than not going to create more stagflation as costs rise without the economic stimulation of the economy because they keep reducing disposable income with rising taxes.