Here’s an arresting graphic from Merrill Lynch’s chief global strategist, Michael Hartnett.
It shows short term interest rates during the US depression and Japan’s lost decade:
So why the history lesson?
Well, Hartnett says that if the US Federal Reserve can’t hike interest rates at some point in the near future then things are going to look like a lot like America in the 1930s and Japan in the 1990s — and the equity market will top.
In contrast, an increase would be a bullish signal for the equity market and economic growth — and might even reverse some of the huge inflows in ‘safe’ bonds:
Related links:
A slow grind higher - FT Alphaville
Bob the Bull - FT Alphaville
Four bad bears - Dshort
Does monetary policy affect bank risk-taking? – BIS paper