“Japan’s big bang smacks of desperation and this is where things get tricky and potentially dangerous. Why? Because we saw what happened last year following China’s Big Bang, .. and the risks of a full-blown emerging markets crisis are rising and this will have ripple effects throughout the world .. The greenback’s strength will only reinforce commodity and asset deflation, lower import prices and inflation expectations, and in my opinion, it will force the Fed to reverse course fast .. Be very careful here. The big bet is that as central banks pump more liquidity into the system using all sorts of unconventional monetary policy tools, those funds playing the global recovery theme will come out ahead, but for me this is nothing more than another short-covering countertrend rally that will fizzle as global deflation becomes more entrenched. That’s what the bond market is telling us .. And if global deflation becomes more entrenched, you can bet the Bank of Canada will regret its recent decision to stay put and that negative interest rates are coming to Canada too .. Right now, central banks are the only game in town and they’re desperately trying to save the world from a deflationary slump that will likely last for decades. Unlike what some market gurus claim, the Martingale casinos aren’t about to go bust, but clearly central banks cannot fight the global deflation tsunami and the world desperately needs a new macroeconomic paradigm to fight secular stagnation .. But my fear is that the fiscal response to world’s economic woes is lacking, either because of politics or high debt levels constraining public finances, and this means central banks will go it alone and negative interest rates will be the new normal.”

– Leo Kolivakis, Economist & Senior Pension Fund Consultant, Author of Pension Pulse