The Macroeconomic Guessing Game

On last week’s episode of the “Behind the Markets” podcast, we were joined by two guests. The first: Peter Boockvar, the chief investment officer and portfolio manager for Bleakley Advisory Group, a $4.5 billion wealth management firm. He is also the editor of “The Boock Report,” a macroeconomic and market newsletter.

The second guest was Jim Bianco, president and CEO of Bianco Research, which provides wide-ranging commentaries on monetary policy, the intersection of financial markets and politics, the role of government in the economy, fund flows and positioning in financial markets.

Our conversation was broad, touching on the Federal Reserve (Fed), European Central Bank (ECB), the challenges of negative interest rates for Europe and Japan, and a bullish outlook for gold and silver. We also discussed the potential end of the bond bull market and the possibility that we may be nearing the end of the growth-led equity market rally.

Thoughts on the Fed

  • Bianco said that the inversion of the curve is a market signal that the Fed is too tight and has to lower rates. He added that the Fed will move too slowly in its cuts to bring rates down.
  • He also noted this is the first time in 40 years that the Federal Funds Rate at 2% is the highest policy rate in the developed world. It is the only interest rate of any tenor still above 2%.
  • Boockvar is worried that another Fed cutting cycle “drags us into the mud” of near-zero rates as in Europe and Japan, which would impede our banks. Boockvar would prefer to not lower rates dramatically. Rather, he said the ECB should raise rates out of negative territory.
  • Boockvar also sees cutting rates to be partially self-fulfilling by affecting consumer confidence because consumers believe it’s a negative signal when central banks lower rates.

The Endgame for Fed Policy and Yield?

If central banks decide they cannot go any more negative with interest rates, Boockvar believes we are likely to see a sharp move higher in rates.

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