From The Kelly Letter Note 7 sent February 14, 2016:
The age of NIRP [negative interest-rate policies] sent Martin Armstrong, of Armstrong Economics, into a tirade last week. He wrote: “We are on the precipice of what can only be described as a rising systemic risk for all markets. The Fed is now hinting that banks should prepare for NEGATIVE INTEREST RATES. This insanity of following the crowd is undermining the entire world economy. The increasingly unstable footing that we find ourselves standing on is reflected in widening credit spreads that demonstrate that CONFIDENCE is indeed collapsing. … Even the Japanese 10-year bond has gone NEGATIVE, demonstrating the total collapse in CONFIDENCE. Why, you ask? Because this time, the defaults will engulf all governments at all levels.” The all-caps emphasis is his. That’s a good encapsulation of the current fear. The perspective to keep is this: People claiming with confidence to know the dangers lurking before us are the same ones who steered investors wrong half the time in the past. It’s sheer arrogance to claim to know why the yen went where it went, where it will go next, what this will mean to Japanese consumers, what that will mean to Japanese stocks, how governments will respond to whatever defaults happen, and what the effects of those responses will be in their immediate economies, much less the US stock market. Remember, these experts didn’t even get the US bond market right. Now, they know what’s going to happen to the yen and what it will do to stocks in America? I don’t think so. NIRP will have consequences. Not going NIRP would have had consequences. Eventually, the price of oil will stabilize, currencies will reach an equilibrium, what needs repricing will get repriced, and the usual recovery will follow the drop. Sticking to our signal systems will ensure that you participate in it. Paying attention to the pundits will increase your odds of missing out.
In the two years following Armstrong’s warning, the S&P 500 gained 46%.
From his warning through last Friday, it gained 62%.
Yours Very Truly,
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