Wednesday, March 16, 2016

A NIRP World

Wax on wax off.  Risk on risk off.  We are risk on.  The Fed in their convoluted language stated that they will need to see the S&P make a run towards 2100 before they get hawkish.  Yes, it is that simple.  You think they would hike rates after those scary dips in Jan/Feb?  Of course not.  The central banks always err on the side of caution.  It still amazes me how so many come into a Fed meeting expecting a hawkish Fed when that has been the case maybe 5% of the time.

The bond market is way smarter than these so-called fixed income experts expecting 2 rate hikes this year.  Have they been on this planet for the last 10 years?  This is a NIRP world.  Get with the program.  We've gone from a ZIRP world to a NIRP world over the last 2 years.  The Fed is trying to get into the PIRP world, but going away from ZIRP is like trying to escape a black hole.  You can try as hard as you want, but its nearly impossible.  If they do, they will just destroy the financial system as we now know it.

The new financial regime is dependent on super low interest rates to function.  These central banks, while terrible with their economic forecasts, are at least wise to the fact that they are stuck at ZIRP/NIRP.  They know they will unleash a financial holocaust if they treat this economy like it is the 00s when Greenspan raised 17 times in row.  They are stuck between a rock and a hard place now.  They have front loaded stimulus into the present, and they have to keep that stimulus, otherwise they will crush the financial markets.

So what is the gameplan?  You have to buy bonds.  Anything around these levels will pay off big later this year.  The economy is weakening.  The Fed knows that raising rates will crush their Ponzi scheme.  And a weakening stock market will be the trigger, as it usually is.  Not quite a bear yet in equities, but I am getting closer.  This dovish Fed is just the beginning of the end of this bear market rally.  Need to see if Fast Money starts getting bullish.  If they do, that will be my cue to start building equity shorts/buying bonds.


shzhning said...

ZIRP = zero interest rate policy
NIRP = negative interest rate policy
PIRP = ?

Market Owl said...

Positive interest rate policy.

Anonymous said...

what instrument are you going to buy bond? future or ETF?

Market Owl said...