‘Dragons’ are lurking in the economy that will crash the market
Bob Bryan
BusinessInsider.com
July 13, 2016
In today’s global economy you have to be careful where you step or you might be gobbled up.
At least Tad Rivelle thinks so. The chief investment officer of fixed income for TCW Group, Rivelle highlighted the myriad dangers in the economic landscape in a note titled “Here be Dragons.”
Rivelle thinks a series of unprecedented shifts in the global economy have led investors into uncharted waters, or as they used to write in old maps, where the dragons dwell.
Of particular interest to Rivelle is the unprecedented act of negative interest rates implemented by the Bank of Japan and the European Central Bank. To him, the experiment makes very little sense.
“To say [negative interest rate policy] makes no sense is almost tautological,” wrote Rivelle, whose firm has $194.6 billion in assets under management.
“Nobody pays to have their Amazon delivery delayed or their Uber pickup deferred. Consumption now is always prioritized over consumption later, which is why interest rates have been positive for centuries. Is there some set of future expectations that could possibly justify negative yielding debt?”
Rivelle said that if one were to take today’s government bond yields as a proxy for the future expectations of the market, the only thing you could read was doom and gloom on the horizon. The problem, however, is that risk assets such as stocks are looking healthy and hitting all-time highs.
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