Should our government borrow more at negative real interest rates?

If real returns remain low, it will skew capital investment. When recession hits, debtors backing those losing investments will be caught out and forced to delever aggressively as resource misallocation becomes evident

US real 10 year yields at record 225bpt discount to JGBs

PIMCO, the world’ largest bond fund call this suppression of yields financial repression because it means savers and bond investors get negative real returns. However, John Hempton pointed out that in Japan, where this monetary policy is well-advanced, deflation has set in and real yields are positive despite the zero-rate interest policy (ZIRP)

Zulauf: “I expect the market to go below the latest lows in September”

As usual, I find Felix Zulauf’s commentary very perceptive. He has been right consistently for the whole of 2011 in predicting where things have gone. What he is saying is that the fundamentals in the west are weak and now that growth is ebbing, this will be manifest in stock prices. What will policy makers do

Bill Gross: It’s all about jobs and growth in the US

Bill Gross was on CNBC yesterday talking about the debt ceiling deal. His first thoughts were about jobs. “There are no jobs in terms of growth. There are no wages in terms of increase… This is a classic de-levering cycle.”

The debt ceiling ratings downgrade

If Cantor doesn’t fold his hand, it will be a political disaster for him and his party and economic disaster for the global economy

On why Bill Gross supports a job guarantee despite railing against the deficit

Politically, the whole thing looks a lot like Japan. To my mind, the right approach then is to de-emphasize “increasing… borrowing and lending” and re-emphasize increasing jobs and employment. Whether we see work sharing as we see in the Netherlands and Germany or a job guarantee, this could deal with the deficit and structural issues that conservatives care about and the demand issues that liberals care about

Gross and Rosenberg: QE3 will see interest rate caps

Yesterday, I indicated that the FOMC has already considered offering unlimited quantitative easing to target specific interest rates during the second round of quantitative easing. I believe the Fed will do this in QE3, and apparently Bill Gross and David Rosenberg do as well. While a QE3 is still a way’s off – probably not until 2012 – it makes sense to think about how it will be conducted

Gross: Savers to Be Disadvantaged for Years

The Federal Reserve will be on easy street for a long time to come. Real interest rates will remain low, meaning debtors will be favoured over savers. Investors in fixed–income will take it on the chin

Bill Gross: ‘Low policy rates represent an immediate threat to investment portfolios’

Bill Gross: Low policy rates and the increasing negative real yields that they engender as inflation accelerates represent an immediate threat to investment portfolios. Bond prices don’t necessarily have to go down for savers to get skunked during a process of “debt liquidation.” PIMCO advocates a renewed vigilance, stressing bond market “safe spread” alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies.

More on the currency wars and negative real rates

Now that the Fed has confirmed it won’t raise rates and the dollar is dropping, for me it means that negative real rates will continue and that the currency wars are back on. I have comments on what negative real rates mean for investors. I also talk about my suspicion that this time around in the currency wars, China will get the stick instead of the US because of the Dollar peg

Bill Gross on fiscal profligacy and dumping the negative real yields of treasuries

There are four ways to reduce real debt burdens: by paying down debts via accumulated savings. by inflating away the value of money. by reneging in part or full on the promise to repay by defaulting by reneging in part on the promise to repay through debt forgiveness Right now, everyone is fixated on the

Cotton Hoarding in China Shows There is Serious Commodities Speculation

You have to watch this video to believe it. The speculation in the commodities market is well out of hand. Cotton futures are at a record high on speculation that demand in China will continue to increase, as China is the world’s largest importer of cotton. Add in the flooding in Australia and you have the makings of a rally driven by fundamentals but bolstered and amplified by speculation.

Bloomberg explains in the video below.