Download - RIP central banks
![Page 1: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/1.jpg)
RIP Central Banks25 February 2016
War Room
![Page 2: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/2.jpg)
HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates
![Page 3: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/3.jpg)
Market Update
RIP Central Banks
Scenario: Negative Rates?
RIP Central Banks
NEW
![Page 4: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/4.jpg)
HiddenLevers
MARKET UPDATE
![Page 5: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/5.jpg)
Market Update
sources: HiddenLevers, History.com, WSJ, Bloomberg
1
Oil Production
Freeze
2
3
Boomers Now Dying
Call to Break Up TBTF Banks
![Page 6: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/6.jpg)
Market Update: China Slowdown4
sources: HiddenLevers, China Banking Regulatory Commission, People’s Bank of China, NY Times,
China bad loans
now $645b
Jan 2016Record Bank
Lending
Reducing required coverage
First World markets
over China?
China markets plummeting. USA not reacting.
US subprime crisis began
at $600b
Domestics moving
money out
![Page 7: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/7.jpg)
Fed Stress Tests: 2015/2016 Comparison
Fed Stress Test 2015:• Adverse = Stagflation• Severely Adverse = Crash
with flat inflation
Fed Stress Test 2016:• Adverse = Deflation• Severely Adverse = NIRP
sources: Federal Reserve 1, Federal Reserve 2
Lever 2015 Adverse 2015 Severely Adverse
3M Treasury 0.0 -> 2.6 0.0 -> 0.1CPI 1.1 -> 4.0 1.1 -> 1.1Dow Total Stock Market -20% -58%
Lever 2016 Adverse 2016 Severely Adverse3M Treasury 0.1 -> 0.1 0.1 -> -0.5CPI 0.2 -> -0.1 0.2 -> 1.3Dow Total Stock Market -26% -51%
![Page 8: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/8.jpg)
HiddenLevers
RIP CENTRAL BANKS
![Page 9: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/9.jpg)
RIP: Interest Rates Worldwide
sources: WisdomTree, MW
Yield curve shows long duration on low interest debt
![Page 10: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/10.jpg)
RIP: Battle Against Deflation
sources: JP Morgan, Markit
Negative interest rates not lowering currency value as hoped in Japan, Euro area.
25% of Developed Gov’t debt has
negative interest rates. ($23tn universe)
Inflation still ~0
![Page 11: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/11.jpg)
RIP: Why Negative Rates?
sources: HiddenLevers, Whitehouse.gov, Financial Times,
devalue currency
get people spendingrobot takeover
commodities perfect storm
first world demographic shift
Using negative rates to fight deflation is like using plastic forks to fight an atom bomb
jumpstart growth
![Page 12: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/12.jpg)
RIP: Impact on Borrowers + Savers
Effect on Savers• Fees on deposits• Switch to other stores of
value (gold, bitcoin, etc.)• Insurance companies +
pension funds at risk• Take on higher risks in
search for yield.
Effect on Borrowers• Low borrowing costs for
companies/households• Banks unwilling to lend• Who would buy a -1%
corporate bond?
sources: Economist, NYTimes
![Page 13: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/13.jpg)
Negative Rates: Impact on Banks
sources: Credit Suisse, HiddenLevers
Negative rates have led to drop in bank stocks in EU / Japan
BUT – the underlying factor is interest rate margin, not rate level
![Page 14: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/14.jpg)
RIP: Global Bank Comparison
sources: HiddenLevers, Economist
2008-09 US banks recapitalized, Europe not so muchJapan banks in 5y ditch
2015-16US banks lending Europe not recoveringJapan banks in 10y ditch
-38% Japan
-28% Europe
-16% USA
![Page 15: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/15.jpg)
RIP: Fed Report Card (post-2008)
sources: HiddenLevers
US GDP - Meh
US Inflation - Fail
Unemployment – Meh
Equities – Success
![Page 16: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/16.jpg)
RIP: Central Banks Irrelevant in 2016
source: HiddenLevers, Fiscal Times, Telegraph, Economist
Japan-0.10
ECB-0.30
Switzerland-0.75
Fed: +0.50
Negative rates not working abroad.
Central banks out of ammo?
Denmark-0.65
Sweden-0.50
![Page 17: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/17.jpg)
RIP: Central Bank Irrelevant in 2016
source: HiddenLevers, Fiscal Times, Telegraph, 2, Economist
Japan-0.10
ECB-0.30
Switzerland-0.75
Fed: +0.50
Negative rates abroad
Rate hike in USA
Surprise results
Denmark-0.65
Sweden-0.50
yen euro
10y Treasuries
unemployment
euro peg
franc
![Page 18: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/18.jpg)
HiddenLevers
NEW SCENARIO: NEGATIVE RATES?!
![Page 19: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/19.jpg)
GOOD: Reflation Continues
source: HiddenLevers,
CPI trending up in USA, despite Oil Crash
Rising Rents +
Home Prices
CPI rising sinceJan 2015
Healthcare Inflation UP
![Page 20: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/20.jpg)
BAD: Financials StruggleNo rate hikes = no margin for big banks
source: HiddenLevers, Foreign Policy,
low commodities
mitigate
pressure on equities persists
recession avoided-14%
-7%
![Page 21: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/21.jpg)
UGLY: USA Joins Club
new all time lows on 10y treasuries
source: HiddenLevers
first world demographics
to blame
Fed follows Japan + Europe into negative rates
mild recession a la EU/Japan
savers likely go to cash + gold
gold
![Page 22: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/22.jpg)
Scenario: Negative Rates?
12M T-bills
-0.3%S&P
-20%
12M T-bills
0.1%S&P
-8%
12M T-bills
0.8%
Fed is able to raise rates as inflation trends toward 2% in the USA. This enables financial sector margins to recover.
Inflation below target forces the Fed to cut rates. Financial sector hit hard, while market as a whole nears a bear market (measured from 2015 high)
USA joins EU and Japan in negative rate territory, as deflation pulls US into mild recession.
Good:Reflation
Continues
Bad:Financials
Struggle
Ugly:USA
Joins Club
S&P
+8%
![Page 23: RIP central banks](https://reader035.vdocument.in/reader035/viewer/2022062522/5873d78f1a28ab9d168b7721/html5/thumbnails/23.jpg)
RIP Central Banks – Take Aways
NIRP hits financial sector hardest NIRP causes flight to safety
First World Deflation overwhelms Monetary Policy
NIRP does NOT weaken currency