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The BS Filter: Krugmania... Going Negative... Hopes, Rumors & Speculation - Lower for longer cartoon 05.28.2015

Krugmania!

It's time to borrow, says noted Keynsian and NYTimes columnist Paul Krugman.

"... The federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday. Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms." 

 

Fellow economist Kenneth Rogoff echoed the sentiment on Project Syndicate

OUR TAKE: Classic Keynsian economics. When all else fails, spend, spend spend...

Going Negative...

"Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries," the Wall Street Journal reports. Apparently, WSJ continues, negative rate policies (NIRP) have the unintended consequence of undermining confidence in these respective economies.

OUR TAKE: Macro markets have already sniffed out slowing economic growth and NIRP negativity. Year-to-date, Euro Stoxx 600 is -5.8% and the Nikkei is down -11.9%.

HOpes, Rumors & Speculation

Reuters writes, "Oil edged further above $45 a barrel on Tuesday as forecasts for a drop in U.S. inventories and speculation of producer action to prop up prices countered concern about a supply glut." The OPEC oil production "freeze" speculation is ongoing, with Venezuela, Kuwait and Ecuador pushing a production freeze in response to the recent dip in oil prices. 

OUR TAKE: As Hedgeye Potomac Senior Energy Analyst Joe McMonigle wrote today, "We believe the sequel to the production freeze will end the same with no agreement in September."

Out of Ammo?

The pound briefly slipped below 1.30 today as Bank of England policy maker Ian McCafferty wrote in The Times newspaper that “more easing is likely to be required” if the U.K. economy continues to slow. McCafferty wrote that the BoE could cut rates to zero or expand QE. The central bank “faces a set of economic circumstances that make assessing the appropriate amount of policy stimulus more difficult,” McCafferty writes. “I prefer to learn as we go, providing some stimulus while using our available ammunition cautiously.”

OUR TAKE: What makes McCafferty so sure additional easing will save the already dormant U.K. economy.

A Flurry of Bond Issuance

"Companies worldwide are poised to raise more than $100 billion [in corporate bonds] so far this month," Bloomberg reports. That's the most for the period going back to 1999. Meanwhile, reporters for the Wall Street Journal write that, "Companies and government agencies are “calling” bonds at the fastest pace in four years, taking advantage of provisions that let them redeem securities under certain circumstances and save money by reissuing at lower rates."

OUR TAKE: We are the original authors of #LowerForLonger rates, making the claim well over a year ago now. Good call. It's still playing out in real-time.