Author: Elite Investor TV
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Join the Elite Investor Club here - http://www.eliteinvestorclub.com/ http://www.grahamrowan.com/ - Visit my website for more Tips & Advice Subscribe to my channel for weekly videos. Watch last weeks video - https://www.youtube.com/watch?v=YR0HVSF93KY Should we be positive about negative interest rates? Imagine Captain Kirk came back to earth after a forty year voyage in space. Your job is to explain what’s changed in the global financial system while he’s been away. Starting with negative interest rates… Ok Jim, here’s how it works. You give me a hundred euros for this German government bond today, and in five years’ time I give you back ninety-five euros. Any questions? ‘Beam me up Scotty, they’ve all gone crazy down here…’ If you thought it strange that we still have emergency interest rates seven years after the crisis, you obviously haven’t adjusted to the ‘New Normal’. Not long ago we all thought the weirdest thing that could happen was central banks printing money and using it to buy government bonds. Those of us who are a bit old fashioned and belong to what you might call the Austrian school of economics had a technical term to describe what organisations like the Federal Reserve were doing – fraud! Now, QE is part of the new normal. But what happens when the forces of economics 101, supply and demand, collide with the new normal of biblical money printing? The answer is negative interest rates! You take a risk buying my bonds. And I reward you years in the future by giving you back less than you invested. You think I’m joking, don’t you. How does this concept make you feel? Let me do my best to give a rational explanation of something that appears to defy logic. You might want to toke on some wacky baccy before trying to follow this. Because of the risk of deflation in the Euro zone, the European Central Bank recently announced a massive QE programme. But, unlike the Fed in America or the Bank of England here, there’s no such thing as European bonds that they can buy. They have to spread their love around a bit like Mambo number 5. (A little bit of Jessica etc). So they have to buy bonds from some of the dodgier countries of southern Europe like Spain, Portugal and Greece. What happens when there are suddenly a lot more buyers for something? The price goes up, which in bond terms means the yield, the interest payment, goes down. So if the bonds of the dodgy countries go up in price a bit, those looking for the safety of stronger countries like Germany or Switzerland will pay even more for bonds issued by these safe havens. But, since their interest rates were already close to zero, this new splurge of buying has raised the prices so much that the yield has gone negative. This is something many economists thought could never happen. They talked in hushed tones about interest rates being ‘zero bound’. Like so much the economists tell us, this has proved to be utter B.S. Switzerland started it with a central bank rate of minus nought point two five per cent in December. They’ve since ‘raised’ the negative rate to nought point seven five per cent. The ECB has followed suit and is now charging banks to leave funds on deposit. And it’s not just banks and government bonds going negative. In recent weeks corporate bonds issued by the likes of Nestle and Shell have gone negative. So, in their search for what they perceive as safe investments, individuals and institutions are now prepared to take a guaranteed loss over periods of up to thirteen years in the case of Swiss government bonds. Madness? Or a certain sign that there’s mayhem on the horizon? If you haven’t already booked your seat at the wealth summit to find out what the best brains on the planet think is going to happen, be very careful out there!