Imagine waking up 30% poorer. Well, that is what happened to millions of Argentines following the nation’s 2019 non-binding election primary. Voters wanted to jumpstart the economy by … hurting it.
The electoral contest saw the nation’s center-left opposition leader, Alberto Fernandez, and his running mate, former President Cristina Fernandez de Kirchner, secure a victory with 47.4% of the vote. Meanwhile, center-right President Mauricio Macri received just 32% of the vote. The surprise result sent markets into a tizzy. The peso cratered 30%, euro-denominated bonds plunged, and the main stock market crashed 35%.
Voters were apparently showing their frustration with Macri, who has presided over high inflation, double-digit unemployment, and a contracting economy. In an attempt to alleviate his collapse in the polls, President Macri quickly announced a series of relief measures, including income tax cuts, an increase in welfare payments, and a 90-day freeze in gas prices.
Not a lot is known about Fernandez’s plans to rescue Argentina from the deep recesses of stagnation, as he has chosen to keep his intentions under wraps. Ostensibly, the only things voters are aware of is that he is a populist, he opposes Macri, he wants to renegotiate with the International Monetary Fund (IMF) over foreign debt, and his running mate was a disaster of a president.
What we also do know is that both leaders are interventionists. Macri thinks he will solve the downturn by imposing price controls, which only makes matters worse. Fernandez, critics fear, will yield to interventionist policies introduced by Kirchner – remember, under her ruling thumb, the country experienced immense shortages, citizens bought anything to combat inflation, and there was a vast capital flight prior to her capital and currency controls.
To Macri’s credit, he pulled off one of the greatest swindles in public finance history. He got the market to purchase 100-year bonds!
The national election is scheduled for October 27, 2019. Whoever wins in the end, Argentina loses.
Sweden Turns Negative
Sweden made international business headlines when it sold ten-year debt at a negative yield, meaning that investors will suffer a loss if they hold these instruments for the next decade. Moving forward, Stockholm will sell government bonds with an average yield of –0.295%, down from a positive yield of 0.25% just three months ago.
But this isn’t only confined to the home of Ingmar Bergman, meatballs, beautiful blonde supermodels, and no-go zones. Negative government yields are a global phenomenon, much in the same way Gangnam Style was a few years ago. Unlike the dance craze, however, this might be something a bit more permanent – and perhaps less annoying.
Deutsche Bank turned heads when it reported that approximately $15 trillion of government bonds worldwide, or about one-quarter of the bond market, now trade at subzero yields. This has tripled in nine months and it will likely increase in the coming months as more central banks accommodate.
Analysts are trying to make heads and tails of what is going on, blaming everything from the US-China trade war to deflationary technology. But the real culprit for the spike in negative-yielding debt is the central banking system and its reckless policies of the last decade.
Central banks unleashed a tsunami of unconventional monetary easing in the aftermath of the Great Recession. After taking a breather, the smartest men in the room returned to the printing press to cut interest rates, purchase bonds, and even buy up stocks. The US, India, New Zealand, and Thailand central banks slashed rates, expanding the chorus of those hopping on the easing bandwagon.
So, when you see the Japanese 10-year bond or the German 30-year bond dip into negative territory, or the yield on the 10-year Treasury note fall below the yield on the 2-year note, realize the culprit: the central banks. They are the ones distorting markets – up is down and down is up; Sen. Mitt Romney (R-UT) is a Democrat and former Rep. John Delaney (D-MD) is a Republican.
Are corporate bonds next? Well, it’s beginning to look a lot like subzero temperatures.
Kamala Harris: 300k Autoworkers Will Lose Jobs
It’s time to initiate a thought experiment. Imagine if President Donald Trump were to claim that his opponent was going to cost as many as 700,000 autoworkers their jobs. The mainstream media would have a collective seizure, grieving on television about how absurd this suggestion is. Heck, Carl Bernstein may shriek that this fib is worse than Watergate, or Rep. Jerry Nadler (D-NY) might argue this is finally grounds for impeachment. You wouldn’t hear the end of it.
Well, the president didn’t utter such nonsense. Instead, it was Sen. Kamala Harris (D-CA) who told CNN that 300,000 American autoworkers are going to lose their jobs by the end of the year because of Trump’s policies. She made a similar claim in July, warning that 700,000 autoworkers would receive a pink slip in the coming months.
Apparently, the campaign got these figures from a February 2019 study by the Center for Automotive Research. But Harris even got that wrong because the paper estimated that 367,000 jobs in the entire economy were at risk, not just autoworkers.
It is true that the industry has experienced a single-percentage decline in jobs, mainly due to tariffs. But that is nowhere close to what Harris is contending. It’s fake news.
Hey, perhaps she is channeling Marianne Williamson’s dark psychic force to predict the future. Senator, any idea what the lottery numbers are going to be this weekend?
Arrogance Diminishes Wisdom
Legendary author Leo Tolstoy once wrote: “An arrogant person considers himself perfect. This is the chief harm of arrogance. It interferes with a person’s main task in life – becoming a better person.”
Is arrogance the name of the game? In politics, yes.
Central banks believe their policies will not lead to any economic mishap. Argentine officials think they can generate prosperity by imposing the same failed policies of yesteryear. A distinguished senator assumes she can get away with spouting false statistics just because she is the most popular girl in school for the time being. It is not only fatal conceit to believe you have all the answers and can control society in the image you desire, but it is arrogant to think that you have the correct vision in the first place.
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