Normandy, France – “Now, I think I’ve seen everything” is an expression that – like “this is the end of history” and “I’ll never leave you” – usually turns out to be premature. But it is what we found ourselves saying yesterday. Not out loud. We just moved our lips in mute amazement. On Tuesday, the Italian government sold a 2-year note yielding MINUS 0.023%. We don’t know what is more preposterous: that the Italians were able to borrow money at a negative nominal interest rate or that the press reported this transaction with a straight face.

The Fed’s Big Pivot It should have provoked howls of laughter, withering scorn, and unvarnished derision. But here at the Diary, we will not point the finger and chuckle. We will not invoke our usual tone of sarcasm. We will not damn the whole thing to Hell with loud and blustery cussing. Instead, we’ll take the high road; we just want to know what it means. But before we get to that, let us pick up the news. Here’s the latest, from Bloomberg:

“Pivot” has become the latest fad verb. It seems to mean “move” or “go toward.” You can use it in practically any setting. Investors pivoted toward higher prices yesterday, with a 198-point increase in the Dow. You might tell your husband that you’re pivoting toward buying a new Tesla. And we pivoted back to France last night… after a few days in Ireland. It is a gray day in Normandy this morning. But the leaves have pivoted to such glorious shades of orange that the effect is a profound and melancholy splendor.

But let us pivot back to our subject for today…

An Odd World

A negative nominal interest rate – meaning a negative rate before you account for inflation – implies an odd world…

…maybe even a world that cannot really exist.

To lend at less than zero suggests you believe the present value of money is less than its future value – in other words, deflation. And you must assume that the risk of default or inflation is near zero.