With the Federal Reserve cutting interest rates three times, the Federal Reserve has also purchased US$60 billion in short-term treasury bonds every month since October, and continued until the second quarter of 2020. For example, in the nine working days after September 30 alone, nearly US$521 billion (about RMB 3.8 trillion) of liquidity was released to the market in the nine working days after the start of September 30 alone. On December 23, the Federal Reserve announced a periodic liquidity operation of at least US$500 billion.
only has the above two operating plans, which means that by January 14, 2020, the Federal Reserve's balance sheet will exceed its highest ever $4.5 trillion. At the same time, the U.S. Treasury Department also hinted that it may consider issuing 50-year or 100-year bonds next year.
and US stocks have also hit new highs again and again. In this regard, Scott Minerd, chief investment officer of Guggenheim Partners, said on December 23 that the current market environment is quite similar to the situation before the 1998 financial crisis, and " Minsky Moment " is probably coming. For example, the current environment where the Federal Reserve cut interest rates three times this year is similar to the interest rate cuts from 1995 to 1996 and 1998, and the market also has the characteristics of the Minsky Moment (as shown in the figure below).
Once global central banks start experiencing interest rate hikes or economic slowdowns again, there may be a dilemma of shortage of funds from borrowers, which may ultimately not be enough to pay the debt interest.
For example, the Fed still emphasized in a statement issued two weeks ago that this is not the beginning of a long list of interest rate cuts. Don’t think we will never raise interest rates again. This means that the Fed may send the strongest signal of currency flow to the global market.
According to the latest report released by the IMF in December, as of the end of 2018, the total debt of public government departments and private sectors around the world reached US$188 trillion, a record high. According to the latest data released by the US Treasury Department, the total amount of US debt has now exceeded US$23.12 trillion.
These borrowers may not be able to raise funds when interest rates are normalized, and a considerable portion of their debt may never be cashed out. A legendary economist Eger von Greyes, who has successfully predicted quantitative easing and historical fluctuations in currency also made such insights in the article published in Goldmoney a few weeks ago.
For example, the recent plunge in US dollar assets represented by US stocks and US bonds and the inverted long-term and short-term US bond yields are reflected in the pressure on the market after the surge in US debt.
Investment Master Rogers even warned in a very affirmative tone that under the heavy pressure of huge debt problems, the United States is facing a crisis that is even more serious than the 2008 financial tsunami. Affected by US debt and the high valuation of US stocks, US dollar assets may become a threat. It is worth mentioning that the current interest rate gap between US dollar high-yield bonds and US bonds during the same period has narrowed, which is also a clear sign that the global currency market is about to collapse.
For example, recently, many European countries, Argentina , Turkey's financial market turmoil has finally temporarily calmed the market, but a global currency collapse may be approaching. Gerald Celente, a well-known trend prophet, wrote another article to warn that the global currency collapse is coming, and the impact on the market is far greater than the shock caused by the emerging market crisis.
We noticed that just against the backdrop of the Federal Reserve's rapid and violent printing speed, the dollar shortage of in the foreign exchange financing market has not only not alleviated, but has become tighter. Even the US dollar trade-weighted index has hit a record high in the past two weeks, surpassing the peak in 2002, and has soared to 9.75% (a decrease from the 10% high in October).
This means that the pressure on the US fiscal payment of interest increases, which indicates that the pressure on the US financial market exceeds the normal level, and this indirectly confirms the increasingly strong analysis of the currency collapse risk signal warned by Gerald Celente. According to Bank of America, liquidity will be short of in the next two months, and it may continue for a while.
Next, the liquidity of hundreds of billions of dollars is invested in the US market, and the impact of its currency spillover on the global currency market will be obvious, especially in emerging markets, which also confirms the increasingly strong analysis of the currency collapse risk signal warned by Gerald Celente. In fact, the monetary policy information conveyed by the Federal Reserve and the European Central Bank recently is clear, and they have seen major problems in the world economy and financial system.
In this regard, a legendary figure put forward some new insights on major economic and financial risks in the world today. He is Eger von Greyes, who has historical currency fluctuations. His latest article on Goldmoney believes that there are five major economic and financial risks in the global market. Looking back at the global economy in 2019, there are many macro uncertainties in the global economy, and in 2020, many risks are still flooding around the world. These economic and financial risks include:
Deutsche Bank believes that in 2020, will there be a large number of investors pay for the US bonds? This may be one of the major risks to the market, and behind this is the modern monetary theory that the US economy has implemented for nearly 70 years. Recently, the US Congressional Budget Office expects the federal deficit to increase by another $11.6 trillion in the next decade, believing that starting from 2022, the federal deficit will exceed $1 trillion per year.
The Federal Reserve and the European Central Bank restart quantitative easing, risk assets have not risen, and the use of monetary policy and fiscal policy tools means that the global demand for fixed income products has decreased. The Bank of Japan continues to slow down quantitative easing, which means that the global demand for fixed income products has decreased;
algorithm-driven and risk-parity-driven are one of the most important market risks;
Global currencies are competing to depreciate, and more than 20 countries have interest rates of zero or below, and the global negative interest rate debt of more than 17 trillion US dollars is unsupported. For the global paper currency system, printing money at will, the currency will become worthless;
Global financial derivatives are worth US$1.5 trillion, but as counterparties go bankrupt, these derivatives may collapse. At the same time, the over-leveraged European and American banking system - the leverage ratio reaches 20 to 50 times.
After all, this is more like the US dollar carefully concocted the process of harvesting the wealth of investors in these markets, and it is also the process of the US fiscal transferring the risk of nearly one trillion US dollars in deficits to multiple markets every year. This means that the cost of borrowing US dollars is getting higher and higher, and the US dollar shortage has begun to appear in the global currency market again. Data shows that investors need to pay a premium for converting the euro, pound or yen to three-month dollar through cross-currency basis swaps close to the highest level since this year, and this dollar shortage may continue.
In this regard, Jefferies economists said that in such an environment, short-term market interest rates may face huge upward pressure before the end of the year. In addition, expectations of loose monetary policies in Europe, the United Kingdom and some emerging markets have put pressure on the local currency, and the market is worried that the global market may face a currency crisis.
Because these markets have developed a dependence on short-term cheap dollar financing with the rapid expansion of the Federal Reserve's balance sheet over the years, but when the dollar shortage occurs, the monetary authorities in these markets must sell foreign exchange reserves to maintain a fixed exchange rate, but this further exacerbates the balance of payments deficit. As the actual dollar savings in these markets are very small, the US dollar capital has withdrawn in the process of rising and lowering interest rates, and eventually these markets will continue to experience a difficult situation of stagnation of liquidity.
However, for investors, it is not a bad thing to listen to more market warnings. On the contrary, when calm down, we will find that the decline in the market will bring buying opportunities for smart investors. In this regard, Rogers, a international investor known as the most visionary, finally advises investors to prepare for the worst. He said, "The only way to protect one's investment is to invest or engage in the fields they know." "The only survivor may be those investors who know what they do."
In these contexts, in the past two months, in the environment of a significant decline in a number of key U.S. economic data and the Federal Reserve's three interest rate cuts, dollar assets have reduced their attractiveness, which reflects the market's concerns about the US economy falling into recession. Analysts believe that for a long time in the future, some of the Smart International funds withdrawn from the U.S. bond market will flow strongly into the Chinese market. Analysts said that in recent times, Chinese government bonds have been included in the JPMorgan Chase and Bloomberg Barclays Global Comprehensive Bond Index. Not only that, from February 28, 2020, the weight of Chinese bonds in the GBI-EM global emerging market diversified government bond index will gradually rise to 10%. It is expected that these will attract about US$1.2 trillion of funds to flow into the Chinese bond market in the next five years. Goldman Sachs further stated that US$250 billion of this may come from global central banks.
Because among the major economies, China is one of the few countries with risk-free bond yields still higher than historical lows, which is the core factor in attracting foreign investment. According to the latest data from the Central Treasury Bond Registration and Settlement Company, as of the beginning of December, overseas institutions increased their holdings of RMB bonds by 64.5 billion yuan, the 12th consecutive month of net increase. According to the data from the Shangqing Institute, the cumulative scale of overseas institutions held nearly 2.2 trillion yuan bonds at the end of November. (End)
