This is from my June 9 write up:
Negative yielding global bonds have reached $10 trillion says Fitch. This means that instead of borrowers paying lenders for the privileged to access someone else’s or the lender’s savings, negative yields means lenders are paying borrowers to borrow! Of course under the fractional reserve banking, lending is not a function of someone else's savings but from the central bank's digital press.
Even more, any entity that owns a negative yielding instrument is guaranteed of losses. So the broadening of negative yields simply means that losses in the financial and economic system has been mounting! And all these for the sake of holding onto liquid instruments that ensures of the financing of spendthrift governments around the world.
In short, negative yield is like a premium for the convenience yield.
Think of what this will do to financial institutions, which are required to hold government debt as part of their Tier 1 Capital.
And think of what this will do to pension and insurance funds. In order to match assets with liabilities these institutions are being forced out into the financial markets to gamble. And the yoke of the attendant risks from such speculative activities will be shouldered by depositors and pension beneficiaries…and eventually taxpayers and currency holders
In Japan, because primary dealers are required to buy government bonds, Bank of Tokyo-Mitsubishi UFJ (BTMU) mulls to quit from such a role given the prospective losses.
It has really been an upside down world that has been spawned by desperate central bankers. Negative yields have been designed to the shield from the mountain of accumulated debt, particularly government debt from imploding and setting off a crisis.
And don’t forget given the globalization of financialization these negative yields have been transmitted to as partly carry trade or cross asset arbitrages. For instance, bond traders have sold negative instruments and have been piling into any bonds such as US treasuries with positive yields. Some of these has been spilling over into emerging markets (which should include the Philippines)
Well not everyone agrees that central bank magic will do its desired effect. Investing savants like Stanley Druckenmiller and Carl Icahn have bet recently big on the prospects of a market crash.
Today, international media also reported George Soros have taken a sizeable position on a market crash.
From the Business Insider (bold mine)
Legendary investor George Soros is back to making big bets.
Soros has returned to trading after a long hiatus, according to Gregory Zuckerman over at The Wall Street Journal.
He has recently directed a series of large bearish bets, selling stocks and betting on gold, the report said.
Soros, who ranks second on the list of the most successful hedge fund managers of all time, has spoken publicly about his concerns for the global economy.
He recently said that China's financial system right now "eerily resembles what happened during the financial crisis in the US in 2007-08."
And in Davos earlier in the year, he said that the world is running into something it doesn't know how to handle, and that he was betting against Asian currencies and commodity-linked economies.
China later warned Soros against going to 'war' on its currency
Soros stepped back from day-to-day trading some time ago, and his return to investing marks a turnaround.
Scott Bessent had been the top investor at Soros Fund Management, but he left last year tolaunch his own fund, Key Square Group In January, Soros Fund Management named Ted Burdick as its news chief investment officer
Well you may interpret as my appeal to authority. Regardless, such unprecedented monetary-negative yield policies will come with big unintended very nasty consequences.
And because the world is interconnected and interdependent, rallying Philippine assets have been a consequence of the Developed Nation's negative interest rate and ZIRP policies for the rest. Yes the BSP has a negative real rates policy. Soros or no Soros.
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