“Whether the recent tipping point was the Fed hike, negative rates in Europe and Japan, or simply the growing market disclocations and macro misallocation of resources and wealth, the deflationary theme of ‘Quantitative Failure’ is stalking the financial markets,” Hartnett said in a note to clients. “A multiyear period of major policy intervention and ‘financial repression’ is ending with weak economic growth and investors rebelling against QE.”
Harnett offered a thumbnail of just how prolific global central bank intervention has been:
- 637: Rate cuts since Bear Stearns imploded in March 2008.
- $12.3 trillion: Asset purchases through global QE programs.
- $8.3 trillion: Global debt yielding zero percent or less.
- 489 million: Population of countries with official policy rates of less than zero.
- -0.93 percent: Yield on the two-year Swiss bond, the lowest-yielding government debt in the world.
The results of those numbers:
- Expected gross domestic product growth of 1.75 percent in 2016 for the U.S., according to BofAML economist Ethan Harris.
- Inflation expectations for the U.S. and Europe now falling below financial crisis 2008 levels.
- “One of the most deflationary recoveries of all time,” according to Hartnett, with nominal GDP of advanced economies growing just 11 percent over the past 26 quarters.
- A bear market in stocks.
- A bear market in commodities.
- Loss of $686 billion in market cap for global banks since Dec. 15, the day before the Fed raised rates, leading to tightening liquidity conditions and lending standards.
- “Most conspicuously” a bear market in bank stocks and tumbling bond yields, “suggesting that six years of QE has failed to arrest deflation,” Hartnett said.