Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt.
A peculiar trading session, in which the usual overnight futures levitation has not been led by the BOJ-inspired USDJPY rise (even as the Nikkei225 rose another 0.6% more than offset by the Shanghai Composite drop of 0.86%), which actually has slid all session briefly dipping under 99 moments ago, but by the EURUSD, which saw a bout of buying around 5 am Eastern, just after news hit that the UK would avoid a triple dip recession with Q1 GDP rising 0.3% versus expectations of a 0.1% rise, up from a -0.3% in Q4 (more in Goldman note below).
By Antonio Fatas:Not a great beginning of the week for the world economy. The week has started with more rumors about a Greek default, doubts on the French banks, weakness of the Euro and sharp falls in European stock markets during the first half of the day. Another recession? The beginning of a depression? We are going through a period of fatigue as markets, investors and companies seem to be waiting for good news coming from any of the advanced economies. But we only get bad news.
If the energy boom, technology boom, and globalisation is deflationary, asked Jim Rickards, how can the US pay its debts? “Remember deflation increases the real burden of debt, so if you can’t pay them off today when can you?”
The forces of deflation are powerful, the necessity for inflation is powerful, but what will happen is a near instantaneous collapse in confidence in paper money and a flight to hard assets, he said.
WASHINGTON — U.S. producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.
The Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7% last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6% in March.
SPAIN SHRINKS: News that Spain's economy entered another recession renewed worries about the fragility of Europe's finances Monday and nudged stocks lower. The worry is that Spain's size could make it difficult to rescue.
Good and bad news came out of the eurozone Thursday morning as Spanish unemployment rose more to the highest in at least 37 years, but Britain’s economy dodged a return to recession and grew faster than expected in the first three months of this year.
Spanish unemployment rose more than economists forecast in the first quarter as efforts to tackle the European Union’s biggest budget deficit crimped economic growth.