Steen Jakobsen: The End Of The Debt Cycle

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As we've been watching closely, something is wrong with the big banks. Their shares have lost 25-33% of their market value since the beginning of the year. What's going on?

The turmoil seems greatest in Europe, where bank shares have fallen the hardest, and negative interest rates have appeared with increasingly frequency across member countries.

To make sense of it all, we've invited Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, who can provide an eyes-on-the-ground perspective on the European banking system from his location in Copenhagen: 

Clearly what we've seen over the course of the first quarter this year is that the ability of central banks to do their magic in terms of talking to the market with the rhetoric of "low for longer" and the likes is running on empty now.

If we look back in chronological order of what happened this year, first we had, of course, the Fed with Yellen and Fischer backing down slightly from the three to four hikes they promised in December. That was followed very quickly by, of course, Draghi promising to do 'Whatever it takes!' yet again in March this year. Then the BOJ went negative on interest rates and a number of European central banks followed suit. So much so that actually right now if you look at the G7 governments, about 50 percent of all G7 government is now trading at a negative yield, which seems to be the new solution from central banks.

I think the market is seeing right through that because, of course, at the center of all of this at all times will be the banking system, a banking system that is getting penalized for the negative interest rate. Coming from a country which has some experience with negative interest rates, what is really happening to the banking sector here is that, as a depositor, I get paid 0% to have my money in the bank. I should, in reality, be paying 30-, 40-, 50-basis points, but so far I've been cushioned by the banks. That cushion is costing the banks money.

Likewise, that is reason why negative interest rates are not having any bearing in terms of growth. Very dramatically last week I made the headline that, to some extent, in a monetary-policy history perspective, this could be the Berlin Wall coming down because we've had the Greenspan put, then the Bernanke put. But there doesn't exist a Yellen put for a number of reasons. Not because of her, but just because time has run out. So I think that explains the volatility.

The real question for an investor, in my opinion, is to ask yourself: Is this merely the latest "extend and pretend" maneuver, which is about to happen again with Draghi coming full online in March and the BOJ doing another desperate action and the Fed backing down. Or is it the end of the debt cycle? That is the trillion-dollar question right now. 

Click the play button below to listen to Chris' interview with Steen Jakobsen (40m:01s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/steen-jakobsen-the-end-of-the-debt-cycle/

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I had to listen twice.  The heat got the better of me first time. (Climate change? )
Let's render the situation down for my melted brain. Someone has been printing money. Larkin Rose shows that this is a subtle way to steal wealth.  Who is the thief?  We look at Adam's info  graphic and we see it is not the uber-wealthy.

So who? You can bet whoever it is they are not trumpeting their existence. I'll have to search it up.

I paused the pod at the comment that we are not as productive per capita as we should be. Really? Robots and energy, not withstanding? 3D printing. Anybody got information on new car inventories. The BDI says we have more ships than common sense.

On with the show.

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I enjoyed the flat  Earth joke. That is the latest  cointel brainwave. They add it into the internet traffic in order to name and shame anyone who wanders off the reservation. 
It works with sheep, but not with cats.

EDIEDIT: not unrelated, I see on earthfiles. Com that a 360 terra byte 1 inch glass disk has been produced. 

I could have knocked one of those up in my back shed. (Just kidding).

While they are reverse engineering all these goodies I wish they would spend a bit of effort getting the bugs out of my tablet. 

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But it sounded to me like Steen might not disagree with the US Government reported numbers as much as I do.  I believe that under reported inflation is creating the illusion of economic growth in the US.
I seem much more pessimistic about China than he is as well.

Additionally, no serious mention of the depleted natural resource head wind that humanity is racing into.  That should be taken into consideration when evaluating investments.  Reduced per capital reserves of oil, natural gas, water, ocean protein, lumber, copper… the list goes on.

Finally, I hate to  mention this, but as debt, economic and resource problems become ever more critical, it is almost given that armed conflicts will escalate, perhaps globally.  None of us want to consider that, but it seems obvious that we are headed in that direction.

Here's a somewhat non sequitur factoid.  There are approximately 230,000 humans on the planet for every African Lion in the wild.  Do you think that might be just a tiny bit out of balance?

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I bought 5 robots who I rent out.   Good gig.   

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LOL…

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I bought 5 robots who I rent out.   Good gig. 
Who you rent out? Interesting choice of words there Kugs. The predominant  robots at present look like many jointed arms bolted to factory floors. 

We are still waiting for market penetration of the likes of Hondas Asimo. 

Here Are two examples.

https://youtu.be/2Ysb-Oko3Bg https://youtu.be/4TOotC_Q3sU

 

Until robots are equipped with Quantum computing the correct wording should be " robots that I lend out.

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A joke for now.   But a fleet of waiter robots delivered by drone or google car.

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https://youtu.be/Fvj3pklpymw
Beam me up Scotty or Terminator/Robocop?  What if Robots evolved by themselves eliminating humans and inventing fusion power to populate the heavens?   A tombstone on earth: R.I.P. Humans.

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I prefer the silence of growing plants…
 

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Most of the time!

https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=video&cd=9&cad=rja&uact=8&ved=0ahUKEwih0-ij2YzLAhUN_WMKHcyCD8kQtwIIQTAI&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DJ2UOjYeTvY8&usg=AFQjCNHL3WYHWOPYZEs0oUooBv21nRw1_w&bvm=bv.115091480,d.cGc

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Aloha! In terms of dissenting against official US numbers you can even go to the BIS and find some dissension, problem is you have to dig deep to find it! It's never on CNBC! 
"The water in a vessel is sparkling; the water in the sea is dark. The small truth has words which are clear; the great truth has great silence." - Rabindranath Tagore

Not sure what the BIS sees that the US Fed doesn’t. Even the founder of the Taylor Rule, Prof John Taylor notes there has been no real recovery as in the past cycles and even this one is much more prolonged misery than any other in recent history.

Still those in power at the Obama administration and those running on the Democrat ticket, especially Hillary, tout the great economic revitalization that Obama inspired. As if one man, at best a puppet, could have any influence over markets. If anything Janet Yellen is more powerful than Obama.

Clearly the BIS chart points to erratic financial cycles that seem to start leaving the bounds of reality back in 1985. What could cause that? What sparked the departure? In 1985 we had the Plaza Accord whereby the top five western powers agreed to intervene in the currency markets. Next came the S&L crisis. Lower the value of the USD artificially and watch the influx of foreign capital ripe for asset purchases. Which the Japanese still regret!

Once again as we hear Congress yelling at China about currency manipulation we forget who taught them about that! The US interventions into every market on the planet including the bank bailouts prove that China is an amateur at rigging the game and always will be. Still what can you expect from a bunch of Communists?