Bennett Group Financial

Dawn Bennett Writes Article, "The Central Bank Titanic," Regarding the Current State of the World's Central Banks


Washington, DC -- (ReleaseWire) -- 02/04/2016 --Despite last Friday's 300-point run up in the market, January has been a bleak beginning to the year for equities. The Dow is down 5.5 percent year-to-date, the Russell 2000 at negative 8.85 percent, the NASDAQ off 6.84 percent. And truthfully, stocks still can't be considered cheap. In fact, the Wall Street Journal's Market Watch recently wrote that the Dow could lose a further 1000 to 5000 points and still not be "cheap" compared with long-term stock valuation measures. In fact, most stocks worldwide are down between 18 and 54 percent from the May 21, 2015 peak of the global equities markets. If history is any guide, it's likely that February will be a down month as well: since 1957, there have been 20 January months that posted negative returns, and the likelihood of February being negative as well is between 75 and 85 percent.

What was Friday's rally about, then? One reason could be month-end set dressing by hedge and mutual fund managers eager to have the appearance of a win after a particularly brutal start to the year. Even more, though, was another round of "more of the same" central bank manipulation like we've seen for the last six years, as the Bank of Japan reversed a position announced a week earlier and moved to negative interest rates, joining Switzerland, Sweden, Denmark and the EU.

Let's unpack that some. The primary role of central banks is to influence capital allocations and spending behavior by adjusting liquidity, and over the past seven years they have gone crazily overboard regarding that objective, engaging in every possible way to influence consumers away from a saving mindset and into purchasing riskier assets. Even given this, net purchases of stocks and bonds have been nearly flat since the middle of 2015. Seeing Japan's equities markets still faltering, Bank of Japan Governor Haruhiko Kuroda took interest rates into negative territory on Friday, hoping to chase investors into stocks and bonds in order to reach his inflation goals.

How is that working out? Not well. Japanese Government Bonds have moved to negative yields, and the Ministry of Finance is expected to announce a decision to call off the sale of 10-Year JGBs for the first time in history. Their stock market continues to fall. Amid these unintended consequences, Kuroda continues to say there is "no limit" to monetary easing, going so far as to say he would invent new tools if going farther negative doesn't start movement toward his 2 percent inflation goal. The New York Times wrote that "moving to negative interest rates reflects a measure of desperation on the part of the central banks. Their traditional tools have been largely exhausted as most countries interest rates have been pushed to almost nothing." In fact, that word, "desperation," has been appearing a lot in this context.

With Japan moving negative, nearly a quarter of the world's GDP is now produced in countries with negative interest rates. The Financial Times did the math and a record $5.5 trillion in worldwide government bonds are now trading at negative yields. They go further to say, "fears for economic deterioration and increasingly abnormal policies adopted by global central banks to ward off the threat of deflation have resulted in a bizarre scenario in which investors pay governments to hold their money."

Could negative interest rates be coming to America? How far will Yellen go to keep money in risk assets? In a global environment like this, it's not out of the question. In fact, one of the scenarios the Fed will be testing in its 2016 "stress test" is one where the rate on the 3 month T-Bill stays negative for a prolonged period of time. The Fed says that scenario, which also includes a global recession and 10 percent unemployment, isn't a prediction and doesn't signal future monetary policy, but we have to see it as a sign that they're not entirely averse to following their European and Japanese counterparts.

If the world's central banks are captaining a market Titanic, investors need to make sure they know where the lifeboats are. Despite the disincentives the central banks are placing on savings and money market funds, we should be considering cash. We should also note that silver has been holding its value and gold is one of the few asset classes that actually increased in value over the course of January. Whatever decisions you make, though, make them based on your own research and the advice of trusted professionals, not just based on the cheer-leading of central banks, politicians, and media mouthpieces.

For over a quarter century, the experienced advisers of Bennett Group Financial Services, LLC have been successfully guiding clients through the complexities of wealth management. Bennett Group Financial Services provides individual investors, corporations and foundations with holistic investment strategies using unique portfolio solutions across a breadth of asset classes. Our unique vision and insight into market trends makes Bennett Group Financial Services a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to our highly regarded weekly talk radio program - Financial Mythbusting. Through attentive service and prudent, thoughtful advice, Bennett Group Financial Services, LLC strives to consistently provide its clients with the highest quality of guidance and personalized service available.

About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting

She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.