Submitted by Taps Coogan on the 9th of July 2019 to The Sounding Line.

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Louis-Vincent Gave, co-founder of Gavekal Research, recently spoke with MACRO Voices’ Erik Townstead in a wide ranging interview. He discusses his market and economic outlook, Hong Kong’s future, as well as the significance of the Deutsche Bank restructuring.

 

Some excerpts from Louis-Vincent Gave:

“I don’t think (Deutsche Bank) is a Lehman moment for a very simple reason and that is that Lehman was a crisis because all of a sudden you had to unwind a bunch of counter-party risk and you didn’t know who owned what and nobody trusted each other in the financial system anymore. What Deutsche Bank does is to basically pull back to its domestic markets. It is not defaulting on its counter-parties. It is not all the derivatives that it has written over the years. What it is doing is basically shrinking the size of the bank without defaulting… After Lehman it seems very unlikely that another western government would allow a bank to, in essence, default on its counter-parties and trigger the sort of chain reactions that we saw after Lehman…”

“However, I think it is nonetheless an important moment… What Deutsche Bank is showing us is the limits of the negative interest rates policies, the limits of the zero interest rate policies… We thought we found the ‘magic money tree.’ We thought we’d found the ability to just create wealth out of thin air. Turns out, it isn’t. Turns out, the negative interest rate policy, in essence, bankrupts savings institutions. It bankrupts pension funds. It bankrupts insurance companies and it bankrupts banks. What you are doing with the negative interest rate policies, with the zero interest rate policies, is… transforming the years of  liquidity accumulation in the financial sector and transferring those into the balance-sheets of consumers or onto the balance sheets of the governments. But today we are seeing with central banking is the clear cost of the negative interest rate policies and that clear cost is the bankruptcies of financial institutions that are hundreds of years old.”

There is much more to the interview, so enjoy it above.

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