“EQUITIES have certainly been a long-term momentum play as the central banks have prevailed in pushing equities and real estate prices ever higher, while the fungible nature of fiat currency has kept global bond yields historically low. Meanwhile, forward guidance maintained the powerful regime of negative interest rates in Japan, Switzerland, Germany, France, Spain, Italy, Sweden, etc. The use of negative interest rates and zero interest rate policy has been the ultimate determinant of ‘Who Gets Eaten and Who Get’s To Eat.’

As Carmen Reinhart has argued for the last nine years, the ultimate outcome of the Fed’s efforts at financial repression is that savers get crushed while borrowers and hard asset owners get rewarded. If the Fed is truly on a path of “normalizing” interest rates owners of interest-yielding products will get some relief. Are the short volatility crowd and risk parity positions ready for the end to a beautiful deleveraging?”

“The QE programs propagated by the FED, ECB, BOJ, BOE and SNB has flooded the world with ultra-cheap debt. This is similar to the mid-1970s when the OPEC nations had massive amounts of dollar deposits after the rapid increase in OIL prices. It is only the weakest borrowers who are in need of borrowing the greatest amounts. We have gone from the recycling of petro-dollars to the world’s financial system being overwhelmed with the FED‘s largesse. In times of great amounts of liquidity, money is like water: It congregates at its weakest point.”

Notes From Underground: Who Gets Eaten and Who Get’s to Eat (Sweeney Todd)

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