As western economies (ie Japan, Europe, Switzerland) and now the US sink into sustained negative interest rates policy, shall we reevaluate the way we think investing?
What I can quickly think of:
Will bond issuers (ie corporates) find willing lenders, and if so at what spread to sovereign bonds? Will insurance policies and retirement fund find bond substitutes, driving up corporate spreads? I know infrastructure funds are hot these days for that very reason (chasing yield).
Higher multiples for risky assets to reflect lower LT expected returns, cheap leveraged money to bid up these to capture the “risky to rf” spread.
What would happen to “store of value” assets, such as gold (and even BTC?)
Should we expect a greater rich-poor divide, leading to unrest and finally the redefinition of the social contract in western economies?
We’ve had negative real rates during ZIRP and the sky didn’t fall.
Of course they will. Would investors rather pay the government to hold their money or get a few percent buying corporates? This would be good for non-government bonds.
That’s the whole point. It’s called the Wealth Effect.
Gold generally benefits from lower rates.
I couldn’t care less, so no opinion from me on this one.
bond volume has definitely picked up. so there is demand for these low yielding bonds. we are still positive though. imp stat 18% of bonds worldwide are now negative. roughly 18t. no idea on what insurance will do, but they follow alm model which means they will idiotically purcahse it if thats what market consensus expect rates to be.
that’s definitely happeneing. rates is the price of money. and if the price is low, and money is cheap, then vlauations should be worth a lot.
gold is a store of value, and if they keep rates low and keep moeny cheap, then gold should be expensive. btc imo is code that i guess people are using to store value( i think its idiotic)
huge rich poor divide. there prolly will be a change at some point. right now middle class is disappearing. no unrest, but there is defintiely a surge in homelessness. imo should we experience a downturn. a lot of these people currently employed will be joining their ranks. then im sure shit will get interesting. for now as the econoym continues to hum. i think we will see the minimum wage creep up to the median wage.
tehre is a reason why dollar stores are popping all across the us .there ewas a time when there was a stigma for the middle class to go to a dollar store. that is no longer the case.
Interesting point on real rates being negative for what has been an extended period of time. Have you observed paradigm shifts associated with this new reality?
Indeed
I always thought the wealth effect as something that had to do with household consumption “I believe in the economy, hence I indulge, hence creating jobs and a healthy economy”. Compounding wealth (in listed equities and bonds) does not have the same effect on the real economy, maybe aside from making capital easily available to borrowers. But I might be wrong.
Indeed.
Until it is in our backyard, at which point we then care
im not saying buy gold. gold is a pretty shitty investment by itself in the long run.
people use it because it is a good hedge during market downturns. it also has a pretty low correlation with every asset class. they recommend like 5% to 10%.
with that said, many smart ppl are buying it now because they are anticipating a recession very soon.
personally, i dont plan to ever gold. i dont really care if my portfolio is volatile. the idea of buying a shiny object is pretty stupid. but central banks around the world are buying it. many are turned off by the us nowadays so there is a shift away from usd and gld is what makes sense if everyone is making their money cheap.
and i have that 1 uncle that says buy gold bullion since 2007 when it had that previous run up. lol
also on precious metal miners. they usually expereince a super high return when gold is rising, then they do nothing for a very long time. so its like a levered trade to gld.
