FINANCIAL AUTUMN AT SIGHT
During the latest period, a discussion comes to the foreground: the central banks' excessively loose monetary policies have brought the bonds' long-term yields to record low but it is believed that it is no more useful and in case of a new recession wave, the central banks don't have any weapons left in their arsenal.
There is no progress in the inflation, in the demand for loans and in the economic growth, despite issuing money to the marketplace by the massive buying of the bonds by the two main central banks of the European Region and Japan where the central banks passed to the negative interest rate in their respective monetary policies. For example, despite the buying by the Bank of Japan not only of bonds but also of stock funds too, this has not changed much the expectations.
The fact that the global bond stock of 13-14 trillion dollars has turned to negative return is not only showing the fear but it also feeds it. And this fear is the fear of the collapse of the financial sector. Due to this, the leading "investment gurus" are whispering "buy Gold". As you know, gold is the only investment vehicle which does not carry a "counterparty risk". Whether a stock or a bond, the issuer has an obligation. The issuer has a bankruptcy, a default risk.
With the strengthening of data, the central banks may raise the interest rates but it is not the end of the world as the investment community thinks. If things go to worse, past monetary policies could be adopted as well as some unorthodox vehicles not used so far and which have been very effective in the past.
The normalization in the raise of the interest rate by the Federal Reserve is imminent but not undertaken which, in turn, hurts the Federal Reserve's credibility and the economy. Consequently, the Federal Reserve should eliminate the pressure that is felt by the economy and the emerging markets by changing this attitude.
Also, the pessimism regarding the economic growth is due to the productivity. The central banks cannot find a solution to this productivity problem with monetary policies alone and the politicians should take the relevant measures by coming into the game.
