Author Topic: Negative interest rates take investors into surreal territory  (Read 23364 times)

RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #140 on: November 30, 2019, 04:08:05 PM »
Permanent capital loss for momentum speculators in less than 6 weeks!!! It will take him/her 33 years to recover the lost amount - assuming the bond prices don't go down further and inflation is zero. LOL.

AAA-rated Sovereign debt is not supposed to lose 20% in a month. The buyer got a yield of 0.61%/year. These are the so-called "institutional investors" such as pension funds and insurance companies and banks.

The FT has 100% love for Mario Draghi and 100 % hate for Trump/Brexit. FT hasn't said a word about the bond bubble implosion, instead they gave breathless coverage about the Trump impeachment. I terminated my subscription with them.


Barrons Nov 7 edition:
"By late August, the Austria “century” bond hit a price of 210 as the total amount of negative-yielding global bonds hit a peak of $17 trillion. Austria’s bond at that price provided a yield of 0.61%, at least with a positive sign. That bubble has been deflating, although not bursting, in recent weeks. By Wednesday, the bonds were down to a price of about 168, which results in a yield of just over 1%."

Barrons Sep 27 edition:
"In not quite three months, that 1.08% yield to maturity has fallen to 0.72%. The price has reciprocally rallied—no, the word is leapt—to 197.7 from 161, up by 22.9%. You’d think that the bond was a stock."

https://www.barrons.com/articles/jim-grant-theres-trouble-ahead-for-austrias-100-year-bonds-51569615760

https://www.barrons.com/articles/the-bubble-is-deflating-for-100-year-bonds-51573122603
« Last Edit: November 30, 2019, 04:12:28 PM by RuleNumberOne »


John Hjorth

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Re: Negative interest rates take investors into surreal territory
« Reply #141 on: December 01, 2019, 04:47:41 PM »
RuleNumberOne,

Please tell us all how to ride this wave, so that we make more money!
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

stahleyp

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Re: Negative interest rates take investors into surreal territory
« Reply #142 on: December 02, 2019, 03:47:08 AM »
rule, how are you positioned? all cash?
Paul

RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #143 on: December 02, 2019, 07:51:24 AM »
I am fully invested right now. I think this cycle will be prolonged as long as possible because the wipeout of the European project is what happens at the end of the cycle.

My guess is the stock market goes higher and things get crazier.

The European banks look dead, their economies seem to be dying, but they blame Trump for everything.

rule, how are you positioned? all cash?
« Last Edit: December 02, 2019, 07:53:58 AM by RuleNumberOne »

Cigarbutt

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Re: Negative interest rates take investors into surreal territory
« Reply #144 on: December 02, 2019, 07:55:42 AM »
^What Rule#1 is saying basically (if I get it right) is to consider jumping off the plane while leaving many questions unanswered. The easy thing is just to ignore as jumping off the plane is the wrong thing to do most of the times but the inputs perhaps incentivize to ask some relevant questions:
1-How much risk can you afford to take?
2-How much risk do you need to take?
3-How much risk are you willing to take?
4-How much do you care about keeping up with the market?
5-Is there a way to make money here?

If the inputs make you go through the first three or four questions then the next logical step is to hope for a complete financial striptease which may be too much to ask.
The above was inspired by a link read this AM:
https://humbledollar.com/2019/12/imagining-worst/
Speaking of humility, one has to wonder about the environment when there seems to be an unusually high number of pilots expressing that flying an airplane is simple AND easy.
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Who knows what this all means but this thread went from an environment where fund rates were supposedly and decisively going higher to neutral and, against all odds, to easing although the Fed has difficulty finding the right vocabulary. In reply #101, Spekulatius noted: "Maybe they are too deep in? If rates increase, the value of those low/no/ negative interest rates bonds would drop and the bagholders owning them wouldn’t broke. Maybe all that can be done at this point is dig deeper." While not being relayed really by the press (even the financial press), there continues to be a very unusual confluence of circumstances where the Repo market has participants refusing to enter "risk-free" arbitrage opportunities and where massive support is now simply integrated into a new normal.
https://ig.ft.com/repo-rate/
And the Fed now put in place 42-day facilities to make it through year-end. This is extremely complex but there is something REALLY weird going on and I wonder if there is a link between the tiny rise in interest rate that occurred since last August and the stress seen at the core of the financial plumbing because, as Rule#1 reports, this tiny change likely had a huge impact on the portfolios' mark-to-market value and these are the typical portfolios that foreign financial institutions use as collateral to enter the US Repo market. Obviously this may be some kind of temporary technical noise but it's eerily similar to the noise heard from the wholesale funding market in 2007, when it was felt that the brutal forces of the market would be contained.
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Today, I plan to analyze Tech Data in order to do some inversion work. It will likely be a learning experience. However, I doubt that it will be possible, even in retrospect, to find an attractive entry point along the way because there appears to be too much competition as the graph showing competition to outcome is bell-shaped


RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #145 on: December 06, 2019, 09:20:08 AM »
Negative rates proving to be useless in the real economy, though they have ended up boosting the US stock market.

https://www.ft.com/content/a1a14220-1801-11ea-9ee4-11f260415385

"Germany’s sprawling industrial sector is suffering its steepest downturn for a decade, underlining how the engine of the eurozone’s biggest economy is sputtering.

   “Far from bottoming out, Germany’s industrial recession may be getting worse,” said Andrew Kenningham at Capital Economics. “The latest data support our view that a recession is still more likely than not in the coming quarters.”"

RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #146 on: December 06, 2019, 09:30:37 AM »
Even the eurozone consumer may be slowing down. Negative rates didn't change anything, why?

https://www.ft.com/content/f4e045da-1734-11ea-8d73-6303645ac406

"   However, there was a worrying sign consumers pulling back in October when eurozone retail sales fell 0.6 per cent in October, a steeper decline than the monthly 0.2 per cent fall in September, according to figures published on Thursday.

“The second monthly fall in a row shows that uncertainty regarding the economic outlook may be starting to weigh on consumers’ spending decisions,” said Rosie Colthorpe at Oxford Economics, while forecasting that eurozone retail sales would still rise for the fourth quarter overall."
« Last Edit: December 06, 2019, 09:34:50 AM by RuleNumberOne »

TwoCitiesCapital

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Re: Negative interest rates take investors into surreal territory
« Reply #147 on: December 06, 2019, 10:44:49 AM »
Even the eurozone consumer may be slowing down. Negative rates didn't change anything, why?

https://www.ft.com/content/f4e045da-1734-11ea-8d73-6303645ac406

"   However, there was a worrying sign consumers pulling back in October when eurozone retail sales fell 0.6 per cent in October, a steeper decline than the monthly 0.2 per cent fall in September, according to figures published on Thursday.

“The second monthly fall in a row shows that uncertainty regarding the economic outlook may be starting to weigh on consumers’ spending decisions,” said Rosie Colthorpe at Oxford Economics, while forecasting that eurozone retail sales would still rise for the fourth quarter overall."

Pushing on a string.


John Hjorth

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Re: Negative interest rates take investors into surreal territory
« Reply #148 on: December 06, 2019, 11:22:46 AM »
What does all that tell the stock pickers here at CoBF, RuleNumberOne?
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

wabuffo

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Re: Negative interest rates take investors into surreal territory
« Reply #149 on: December 06, 2019, 11:50:08 AM »
Negative rates didn't change anything, why?

Maybe because negative/low rates hurt savers (in terms of lost interest income) than they "help" debtors.  It's a tax basically and destroys the banking sector (which probably also hurts debtors - so no gain).   I remember an analysis that Einhorn did a while back during Bernanke's drive for zero short term rates that used US Household data from the Fed to quantify the negative net impact (savers vs borrowers).  The US was heading in the same direction, but then cut federal taxes which helped to offset the impact to savers by increasing after-tax incomes.

wabuffo
« Last Edit: December 06, 2019, 11:52:07 AM by wabuffo »