Summary: * The carnage in global stock and bond markets continues; it really got started last night in Japan * The JGB (Japanese Government Bonds) dropped for the 3rd consecutive day * The biggest 3-day drop in bond prices in Japan in over 3 years, so yields surging, along with the Japanese yen * Of course, this is not supposed to be happening because they're doing more stimulus and they've got negative interest rates, yet the Japanese yen is appreciating anyway * The Reserve Bank of Australia also came out last night and cut interest rates to 1.5% * That is an all-time record low * Why did they do that? Is it because there's not enough economic growth in Australia? * Are they trying to revive a slumping property market * They've got a bubble in the real estate market - there's no valid reason for cutting interest rates from already low levels * The actual reason that the Reserve Bank of Australia gave for the rate cut was that inflation was not high enough * It's about 1%, the way they measure it, and their goal is to have it between 2 and 3% * In other words, the cost of living is going up by 1% a year and the Reserve Bank of Australia says, "That's horrible! We need to make sure that things get at least 2-3% more expensive this year and we're going to slash interest rates to make sure that happens." * Of course, when you do that, you have all sorts of risks, and what is the payoff? * Why is the cost of living going up 2-3% better than it going up 1%? * What's wrong with the cost of living not going up at all? * How about if it actually went down? What if people could actually buy the things they need for less money? * What's horrible about the standard of living actually going up? * Of course, the real risk is, what if inflation goes from 1% (at least the way they measure it) to 4 or 5%? * Was it worth it? Now you have an inflation problem on your hands * If you've got 1% and you want 2% - You're close enough! * Obviously this has got nothing to do with inflation, they're simply trying to stop the rise in the Australian dollar * But the Australian dollar went up anyway! * They're trying to keep it down because they have this Keynesian world view that a weak currency is good and a strong currency is bad * But we've got to an inflection point where the central banks are losing this battle * The yen is rising despite the efforts to suppress it * The Aussie dollar went up, despite efforts to suppress it * The problem is, the U.S. economy is a disaster * We got the terrible GDP numbers, and we got a lot of other bad economic news today * We've got a lot more bad news coming out later in the week * We might get a horrific report on non-farm payrolls * We got that surprise good number last month, but who knows? We might revise that down and come up with another disappointing number on Friday * But the Fed, instead of acknowledging this, are still talking about rate hikes * In fact a Fed official just yesterday said the market should not rule out the possibility of a rate hike in September * First of all, if the economy comes roaring back (no chance that's going to happen) * Even if it comes back, they didn't say they WOULD raise interest rates, they said they might * Which also means they might not * It doesn't matter what happens to the economy, they can't raise rates * The economy is not getting better * We are either in recession or on the cusp of one * And the data continues to prove that, but the Fed continues to talk as if they're thinking about raising rates * That is part of the problem, because if the market doesn't believe that the Fed is coming to the rescue... * I said a long time ago that we could get rallies in the markets, but they are not going to be sustainable * The Fed is going to have to join the party * It will have to come to the aid of the markets with new stimulus * Just delaying rate hikes will not do it
