Twenty years ago today the Hutus in Rwanda began slaughtering the Tutsis, among the worst genocides since World War II. Anne Aghion, a film-maker friend who produced the indie “Gachaca” movie, reminded me of the anniversary.
With markets down, pessimism is in fashion.
Kamakura Corp raised its forecast 1-mo T-bill rate peak at the end of 2020 to 4.05%, up from a mere 3.86% just a week ago. Ten year notes are expected to rise steadily to a level of 4.23% by 2024 by which time mortgages will cost 5.935%/yr in interest. The Hawaii-based analysis shop uses historic data as a given and doesn’t using changes in the Treasury yield curve which could cause much steeper rises.
Today The Guardian, a UK newspaper, published an article by guru Larry Elliott, who writes:
“Optimists could be right. This could be the start of a long global upswing built on technological change and middle-class spending power in fast-growing emerging markets. Or it could be another case of groupthink.
“Imagine that in 5 years’ time the IMF (International Monetary Fund) is [again] doing a postmortem on a period of global turbulence. What will it say were the warning signs missed during 2014?
“The first will doubtless feature the global economy’s dependency on exceptionally low interest rates. Britain and the US have only been able to revert to their trend rate of growth through looser and looser monetary policy.
“The second threat is a bond market crash as central banks try to return monetary policy to a more normal setting gradually reducing the amount of bonds [bought] under quantitative easing [and] using forward guidance to reassure borrowers that any increase in interest rates will be modest and gradual. When the time comes to sell bonds back to the market, the greater supply of bonds will depress prices and raise yield. A rush to the exit would be swift and painful.
“Is there a bubble out there everybody is missing? How about fracking? Getting oil and gas out of the ground is proving costlier and less profitable than expected. The third threat is that fracking proves to be the new sub-prime.
“Finally there are problems the world ignores at its peril, the risk of resource conflicts unless the international community serious[ly] deal[s] with global warming. The inaction of policy makers on climate change is the same as Greenspan’s on asset-price bubbles: deal with the problem if it arises. We all know how that ended.
“Action needs to be taken against rising inequality. For the 3 decades after [World War II] a rising tide lift[ed] all boats. That is no longer the case with a tiny elite grabbing the lion’s share of global growth. At the bottom, and increasing for the middle, [this means] wage squeezes, high unemployment, debt, austerity, and poverty. The 85 richest people own the same wealth as half the world’s population but seem oblivious to the risk of widespread social unrest. [Like] the Bourbons and Romanovs.”
