Yesterday a veteran market professional commented “experience and common sense seem to be useless commodities in the world today.”

I cannot agree more with this statement especially regarding the amount of negative interest rate debt outstanding…$12.5 trillion.  The amount of negative real interest rate debt outstanding is over $20 trillion according to Bloomberg.

Wow!  Most have not even contemplated that in many instances the creditor is now paying the borrower to borrow the creditor’s funds.  It is the ultimate losing trade where losses are virtually guaranteed for the creditor.   And what about the term “return after inflation?”

I will continue to argue today’s environment is primarily the result of excessive central bank intervention, failed fiscal policies of the industrial democracies, a massive unelected and unaccountable bureaucratic state whose interest  is only growing its influence over the populace, and a broken passive trading infrastructure that emphasizes speed and cost of execution over liquidity and capitalization.

In my view the amount of risk that is prevalent is exponential, a risk few dare to discuss.  Economic textbooks do not discuss the impact of negative interest rates only to state negative real interest rates lead to inflationary growth, a truism on the same level that an inverted yield curve is recessionary.

Speaking of which, the media/blogosphere are now yield curve experts pounding the table that every recession is preceded by an inverted yield curve and a recession today is now all but inevitable.

Yes there is the truism every recession is preceded by an inverted yield curve, but these new found experts omit such salient points such as to where the yield curve is inverted for not all inversions are created equal, the duration of inversion, and the number of times the yield curve has been inverted since WWII  (over 100 times depending upon the points chosen but only ten recessions have occurred).

Many times I have opined the markets are devoid of macroeconomic, geopolitical and individual security analysis, focusing only upon style and cost not substance.

Today will too change but unfortunately the longer current conditions exist, especially regarding negative interest rates, the greater the potential risk and damage.

Speaking of a potential catalyst, will anything be resolved at the upcoming G-20 meeting?  If trade is really the major economic concern and if there is a potential resolution, would it then be logical to believe Treasury yields will rise?

I don’t know for as noted above experience and common sense seem to be useless commodities in the world today.

Last night the foreign markets were down.  London was down 0.09%, Paris down 0.09% and Frankfurt down 0.04%.  China was down 0.87%, Japan down 0.43%  and Hang Sang down 1.15%.

The Dow should open nominally lower on geopolitical tensions building into this week’s G-20 meeting. FRB Chair Powell speaks today in New York. Will his comments impact trading or will such be only a rehash of remarks made last week?  I think the latter. The 10-year is unchanged at 2.01%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. 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. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.