Investment Research. I have over 30 years investment experience. My main interests are FX spot along with futures on volatility, commodities and bond futures. All pretty macro stuff. I work as a finance professional in an investment bank. All opinions are my own and in no way are related to my vocation. For this reason I do not generally use my real name. I form opinions by listening to the bulls, the bears, the doves and the hawks. What has struck me is that nearly every financial crisis or phenomenon has been predicted in advance by someone with a well laid out thesis. Most people make the mistake of forming an opinion then looking for evidence to support it. I work the other way round ;) The skill is to play judge and hear all arguments without prejudice and assess the likelihood of each. I find that the strongest signals in the market are when a large number of articles and suggest a consistent idea. For example at the beginning of 2014, a Bloomberg poll indicated that nearly all analysts/economists were forecasting higher rates on the 10 Year Treasury. This was a good example of such a time where a contrarian trade could work. There are three main ideas that modern economics, especially in the context of Central Banking, has overlooked. These are - 1) Economies are ‘self-healing’. Without intervention, an economy will tend to equilibrate and stabilise. Economies have existed long before central banking and while these have had cycles, they have generally self-corrected. A good example of this is when an economy is strong, it will usually be experiencing a trade surplus, which will in turn strengthens its currency. This stronger currency will tend to naturally put a break on the attractiveness of exports from that economy. This will slow credit creation and growth. This is a self-stabilising system. Economies have two types of growth; credit growth and productivity growth. Most modern economies have created too much credit growth over the past few decades. This is why these economies are trying to deflate. Trying to force inflation will have undesirable affects. This will be ultimately, through higher costs with stagnant productivity, result in reduced consumption and investment. 2) Artificially low rates ultimate lead to a lower yielding economy. Japan over the past 20 years is the perfect example. If using Central Banks to force low short rates was the key to growth, then 20 years later, Japan would be an economic powerhouse. It’s not. Here is the reason that is often overlooked – low rates encourage credit creation. Credit creation raises the value of return-producing assets until the yield on these enterprise (and hence the economy) approaches that interest rate itself. In other words the economy adapts to be a low yielding system with higher leverage. 3) Higher leverage in a system means higher credit and market risk. Creating more credit is generally not a good solution to dealing with long term debt problems. A few predictions (which may or may not come to fruition) – The obvious – * Rates will continue lower for as long as we have Keynesian Central Bankers manipulating the economy. * Bonds will continue to rally as per above. * The equity market will continue to rally until the next recession. * When the next recession comes, China and Australia will be hard hit. * Japan has no good options. It must either default or suffer currency debasement within the next couple of decades. For the external sovereign debt-holder, these two outcomes give the same result. * The Fed/FOMC will NOT hike in 2015. They have told us many times over the past six years that they would soon be done with stimulating the economy. Cast your mind back to just before the end of QE, QE2, Operation Twist, QE Infinity etc. We were lead to believe that that was all that was needed. A guess – * TWTR will eventually trade at less than USD$10 in today’s dollar terms. * Once QE Infinity is complete, the Fed/FOMC is more likely to stimulate again than to hike. A long shot – * Australian banks ‘Commonweath Bank’ and ‘Westpac Banking Corporation’ will go bust within the next five years. This will probably mean government bail outs. It will be prompted by a collapse of their real estate market on the back of a slowing China. * NONE OF THE ABOVE CONSTITUES INVESTMENT ADVICE, NOR WILL ANY PARTIES BE HELD RESPONSIBLE FOR LOSSES INCURRED FROM THESE IDEAS.