According to Bloomberg as of last Friday there is $17 trillion of negative yielding sovereign debt.  There is over $40 trillion of negative real yielding debt.  Wow!

The markets (and narrative) are absolutely convinced that the current de globalization will produce a recession.  The markets (and narrative) are also convinced that the US will follow the global economies, the inverse of 80 years where the US economy led the global economies.

As stated many times and confirmed by the statistics and the FRB, domestic data is indicating an economic acceleration and a “robust economy.”  The caveat…”global headwinds” the result of the de globalization, the effects of which are not yet known but are hypothesized to produce only one outcome—global recession.

To the best of my knowledge, not a single actual recession has been predicted; however there have been many forecasted recessions, none of which have occurred.

FRB Chair Powell is talking Friday at Jackson Hole.  Several years ago the hype leading into this event rose to the equivalent of Super Bowl Sunday.  In recent years, partially the result of hype and subsequent dashed expectations, the hype declined dramatically primarily the result of lack of key central bank speakers.

As indicated above, Powell is speaking and the hype is rising that he will imply the Fed will cut interest rates by 50 basis points at the September meeting.

In my view anything that Powell does will be wrong.  It is a lose-lose situation.  If he implies a 50 bps cut may occur, many will claim he caved to political pressure. On the other hand if he does not, it may radically disrupt the financial markets for such has already discounted such an event.

Yesterday Federal Reserve Bank of Boston President Eric Rosengren stated that he is not convinced that slow trade and global growth will significantly dent the US economy, stating “second half of the year growth will be over 2%….thus not justifying another rate cut.”  Rosengren voted against July’s reduction.

As indicated above, there is over $17 trillion in negative yielding sovereign debt up from less than $5 trillion on January 1.

De globalization is more powerful than the Fed.  It is partially the result of the failed bureaucratic state, a state where unelected officials levied regulation after regulation upon society and business. To most of industrialized societies’ electorate, globalization has failed.

Changing topics, the US government is again considering offering 100 year bonds.  For the government this is great as it locks in ultra-low interest rates for 100 years.

Last week I referenced the WSJ that more than 50% of America’s $22 trillion in outstanding debt matures in the next three years.  The weighted average cost of that debt rests at less than 2%.  A rise to 3% would increase the deficit by an astounding $220 billion per year. Wow!

According to the Bank of England, interest rates are at a 5000 year low.  I do not know how the BOE came up with this statistic but should not governments/corporations take advantage of ultra low rates when possible, equivalent to going public at the highest price possible?

There are only two countries that have 100 year debt…Argentina and Austria.  I ask will FRB Chair Powell comment about such a possibility? In my view this would be much more constructive than babbling about a 25 or 50 basis points reduction that in my view will do little to influence corporate or consumer behavior. .  It is evident that with $17 trillion of negative yielding debt that there is an appetite for such yields.

Commenting briefly about yesterday’s activity, equities traded higher on trade optimism.  Treasuries traded lower about a point.

Last night the foreign markets were mixed.  London was up 0.33%, Paris down 0.01%, and Frankfurt down 0.11%.  China was down 0.11%, Japan up 0.55% and Hang Sang down 0.23%.

The Dow should open nervously flat. The 10-year is up 12/32 to yield 1.57%.

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.