I’m scared!

 I’m not sure we have ever seen this before or even in the entire human history: massive amount of debt on negative interest rates. It seems this has become a fashion in the financial world that every country is chasing to move into this territory. If you are not aware yet, all the major EU countries are already in the negative interest phase (see below) and we are seeming more and more to join.Thanks to the widespread adoption by the central banks of Europe and Japan, roughly 25% of all outstanding government debt now trades with a negative yield. This includes half of all European sovereign debt... 85% of Germany's debt... and as of last week, all of Switzerland's outstanding debt. That's right, the entire Swiss government bond market – ranging from maturities of one month all the way out to 50 years – now trades with a negative yield. Even more crazy to see a 100 year government bond by Austria, which is paying less than 1% (at least not yet negative but probably soon will be).

 

 

Now even US is likely moving toward that. That’s really scary. As I’m writing, globally we have $15 Trillion debt that are on negative rates, which is increasing day by day. What it means is that the borrowers get paid to borrow money and the lenders are legally bounded to lose money! What’s more scary is that this is not limited to the government bonds, for which in theory the government can at least print money to pay back (although definitely in depreciation). We are now starting to see negative rates for junk bonds issued by zombie companies, which will very likely turn upside down. In other words, bond investors are now willing to pay such zombie companies to borrow their money with the understanding that their money will definitely lose values and with a very high possibility that they may never see their money back! What a world we are in now!  

This is a totally distorted financial world, for which I don’t know how it can function normally for long and I don’t know what’s the ending for it. One thing I’m pretty sure that it will not end well based on any economic sense!  And likely we will see a total collapse down the road. That’s why I have said many times before, I don’t think the next crisis and recession will just be a short term thing. Historically we have seen two prolonged bear markets lasting for about 15 years or more (see here). We are probably on the  verge of entering another long term bear market that could last even longer.

Of course, I’m not saying this is anything imminent. Not at all. We probably have another year or two with some good times ahead, depending on how the political and economic saga playing out. If the progressive leftists take control of the power next year, just watch for an accelerating entry into this long term bear market! As I have always said, you don’t need to believe me as I’m only sharing my thoughts here with no intension whatsoever to change your mind. For myself, the last thing I want to see is we run out of money when we are at 70s or 80s, not because I’m doing poorly personally but because of crises due to the whole financial world messes. That’s why I want to be prepared for my future, which takes time to set up a strong solid financial moat! I will be sharing what I’m personally doing for our future. Actually, since I have set up in such a way that I’m not only not scared of the next prolonged crisis coming, I’m even (selfishly) eager to see it come. Why so? Because it will be a great money making opportunity in our life time and I’m prepared for that moment! You will see what I mean soon.