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NIRP Was a Dud. Are Central Banks Out of Ammo


 -- Published: Wednesday, 24 February 2016 | Print  | Disqus 

By Graham Summers

 

A growing number of investors are beginning to realize that Central Banks are effectively out of ammo (for now).

 

Last week I noted that the Bank of Japanís implementation of NIRP only generated a brief rally in Japanese stocks.  That rally has since been obliterated as Japanese stocks collapsed nearly 8%.

 

 http://goldseek.com/news/2016/2-24gs/image002.jpg

 

This collapse has finally prompted the mainstream financial media to question NIRP. Itís a shame no one bothered to question NIRP, ZIRP, and QE when the markets were still rallying!

 

HSBC: Sweden's Experience Shows Negative Rates Haven't Worked

 

The ĎMonetary Madnessí Thatís Pushing Japanese Bonds Negative

 

Negative Interest Rates Can Hurt Global Stocks

COLUMN-Banks drink from NIRP's poisoned well: James Saft

H/T Bill King for noting the change in media tone.

 

I point this out because it indicates that we are at a critical turning point. Between 2009 and last week, the financial media rarely questioned Central Bank policy, if ever.

 

The fact that we are now seeing numerous articles criticizing NIRP and Central Banks, tells us that psychologically a significant shift has taken place. That shift will see growing criticism of Central Banks along with an increase in bearish sentiment amongst investors.

 

This shift was also evident in todayís Q&A session between Fed Chair Janet Yellen and Congress. For the first time in recent memory, a Fed Chair was grilled on the legality and legitimacy of Fed Policy by members of Congress (with the exception of former Congressman Ron Paul).

 

Does this mean that Central Banks will simply ďgive up and go home?Ē

 

Yes and No.

 

For certain, the bar has been set much higher for Central Bank monetary policy. Interest rate cuts alone wonít cut it anymore. The ECB has cut rates into NIRP three times. None of these cuts produced a significant stock rally. Only QE did.

 

 http://goldseek.com/news/2016/2-24gs/image004.jpg

 

Similarly, the Bank of Japan has obtained its best results with QE programs. As I noted previously NIRP barely even bought 24 hoursí worth of market gains.

 

http://goldseek.com/news/2016/2-24gs/image006.jpg

 

In simple terms, unless a new large-scale QE program or direct money printing is announced, markets are unlikely to react strongly to new monetary policy from Central Banks.

Another Crisis is coming. Smart investors are preparing now.                                  

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 


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 -- Published: Wednesday, 24 February 2016 | E-Mail  | Print  | Source: GoldSeek.com

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