The US stock market is at all-time record highs, and most European countries are still paying negative interest rates. As central banks back-off, either willingly or otherwise, one of these bubbles will pop in disaster. The other one will pop even worse…

It doesn’t take a rocket scientist to figure out that it’s criminally stupid to pay someone to borrow money.
Yet that’s exactly what’s happening now.
Instead of people, though, it’s governments who are effectively being paid to borrow.
We all remember last time how much this impacted the global financial system. Everyone believed that it would all work out OK. Then one day it didn’t. Lehman Brothers went bust, and the entire banking system started to collapse.
There’s very little difference between then and now… and very little reason to expect a different outcome.

Today’s obvious mispricing of sovereign bonds is a bonanza for spending politicians and allows over-leveraged banks to build up their capital. This mis-pricing has gone so far that negative interest rates have become common.
Macroeconomists will probably claim that so long as central banks can continue to manage the quantity of money sloshing about in financial markets they can keep bond prices up.
But this is valid only so long as markets believe this to be true.
Put another way central banks have to continue fooling all of the people all of the time, which as we all know is impossible.

Swiss 10-year historyThe Swiss 10-year yield was as high as 37 basis points on Friday January 2.  It has been nonstop free-fall since then, currently to -26 basis points.
The Swiss situation is truly amazing. One has to go out to 20 years to see a positive number for yield—if one can call 21 basis points much of a yield.
It’s not only pathological, but terminal.  This is the end.

What can explain this epic collapse?  Why is the entire Swiss bond market drowning?
There are several harbingers of financial and monetary collapse. The first is when the interest interest rate on the long bond goes to zero.  A falling rate destroys capital, and that lower rates mean a higher burden of debt. If the long bond rate is zero then the net present value of all debt (which is effectively perpetual) is infinite.
Debtors cannot carry an infinite burden. Any monetary system that depends on debtors servicing their debt must collapse when the rate goes to zero.

I think the franc has reached the end. With negative rates out to 15 years, and a scant 33 basis points on the 30-year, it is all over but the shouting.
I would not be surprised if the process of collapse of the franc began next week, nor if it lingered all year.  This kind of event is not susceptible to a precise prediction of when.
What is clear is that, once the process begins in earnest, it will be explosive, highly non-linear, and over quickly (I would guess a matter weeks).

The European Central Bank again cut the interest rates it controls. Notably, the deposit rate was moved deeper into negative territory. It is now -0.2% (minus 20 basis points, that is not a typo).
The ECB says it’s trying to nudge prices higher, but it’s actually feeding the cancer of falling interest.
One man’s debt is another’s asset. The ultimate asset is the debt of the government. If debtors begin to default in earnest and if one default causes others in a cascade, then the system can collapse like dominoes.

The analogy of dominoes is apt because creditors are themselves debtors. They are typically leveraged, so a small loss can cause insolvency.
The financial system must collapse—necessarily so—when the interest on the long bond hits zero.
Debtors cannot hold up an infinite burden of debt, and that is what a zero long-term rate means.