Believe your strategy sound.
just in e-mail tray
On 4 Sep 2019, at 9:05 AM, T wrote:
Good analysis H
"... given the existence of cash currency, this ceases to make sense as soon as the storage and insurance cost of holding paper money is less than the negative market interest rate on bonds..."
You assume that there will still be cash left to hold. The drive to eliminate cash especially in Europe is well advanced and if we are in a world where negative interest rates will continue to exist, you would want to go cashless as quickly as possible and make it illegal to own gold - from the govt perspective. The latter worked wonders in the 30s in the US to drive stocks higher.
Japan wants a cashless society by 2030 and next year for the Olympics the goal is to be 20pc cashless....whatever the hell that means. There are a number of companies benefiting from this including GMO Payments, Suica, Line, Rakuten, to name a few.
On Tue, Sep 3, 2019, 4:02 PM H wrote:
Although we generally tend to associate interest with money, the originary (or natural) interest rate is at its core a non-monetary phenomenon. It would exist even if we didn't have money. It is simply the discount of future goods against present goods - and this interest rate can never fall to zero or go negative, as long as time passes and there is a "sooner" and a "later". Hypothetically, if the natural rate were to decline to zero, all consumption would cease - we would literally starve to death. On the other hand, the natural interest rate can in theory rise without limit. For example, if we were to know with absolute certainty that a giant asteroid was going to destroy the planet in two months time, all provisioning for the future would cease (since there would no longer be a future) and time preference/consumption would soar.
Ludwig von Mises wrote on this:
"We cannot even think of a world in which originary interest would not exist as an inexorable element in every kind of action. Whether there is or is not division of labor and social cooperation and whether society is organized on the basis of private or of public control of the means of production, originary interest is always present." [...] "Originary interest cannot disappear as long as there is scarcity and therefore action."
Gross market interest rates include the natural rate and two additional components: a price premium (or inflation premium) that accounts for the debasement of the monetary unit and the associated loss of purchasing power and a risk premium that accounts for the probability of the borrower defaulting. It is conceivable with some mental gymnastics that these premiums could become negative (the purchasing power of money may be expected to increase - fat chance in a fiat money system - and the risk of holding deposits with banks may be considered so high that paying up for a "riskless" (ha!) government bond may be considered preferable) - but given the existence of cash currency, this ceases to make sense as soon as the storage and insurance cost of holding paper money is less than the negative market interest rate on bonds (however, in the euro area investors may also pay a premium to account for redenomination risk in the event the euro blows up. Will an Italian investor holding euros on deposit in Germany get Deutsch Marks? Or will his euros be considered future lira? If he holds a German Bund, it will definitely be redenominated into marks).
Having said all that, it is nevertheless clear that the main reason for the existence of negative yields to maturity on bonds is the manipulation of interest rates and bond markets by central banks in Europe and Japan. In particular, negative rates on bank reserves held with the central bank (deposit facility rate) tend to be reflected in interbank money markets. As long as interbank rates are not as deeply negative as the deposit rate, a bank is better off lending its excess reserves than holding them with the central bank - by dint of losing slightly less. The perversion of negative rates propagates outward from there. QE does the rest - the ECB is a price-insensitive buyer with the ability to create new money in unlimited amounts by pushing a button on a keyboard. It has "no choice" but to buy bonds with negative yields, since its QE purchases (currently limited to reinvesting proceeds from maturing bonds) must be performed in line with the so-called "capital key". Germany has the largest share of the ECB's capital and the entire German yield curve is by now below zero.
What will be the effect of negative rates? Contrary to the assertions by central bankers and the sunbed-crisped IMF chief and future ECB president, they are not "helping the economy", they are destroying it. Slowly but surely, more and more capital will be consumed. It should be obvious, but somehow it isn't to these bureaucrats (common sense isn't their strong suit - their stock in trade is the superficially erudite-sounding incomprehensible gibberish that marks the modern-day technocratic snake oil salesman).
Let me quote Mises again:
"If the capitalist no longer receives interest, the balance between satisfaction in nearer and remoter periods of the future is disarranged. The fact that a capitalist has maintained his capital at just 100,000 dollars was conditioned by the fact that 100,000 present dollars were equal to 105,000 dollars available twelve months later. These 5,000 dollars were in his eyes sufficient to outweigh the advantages to be expected from an instantaneous consumption of a part of this sum. If interest payments are eliminated, capital consumption ensues." [...]
"If one eliminates the capitalist's role as receiver of interest, one replaces it by the capitalist's role as consumer of capital. There is no longer any reason why the owner of capital goods should abstain from employing them for consumption." [...]
"Capitalists would consume their capital goods and their capital precisely because there is originary interest and present want-satisfaction is preferred to later satisfaction. Therefore there cannot be any question of abolishing interest by any institutions, laws, and devices of bank manipulation. He who wants to "abolish" interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such laws would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty."
On Tue, Sep 3, 2019 at 4:26 PM B wrote:
Musings on zero interest rates:
Interest rates assign a value to money. What is the implied value of money at a zero or negative interest rate? Who would want to own or save an asset valued at zero or negatively? How is this helpful to society or the work ethic?
Who in their right mind would not borrow at a guaranteed negative interest rate, and invest in a guaranteed income producing asset?
Is this a paradise for builders? Do we get a plethora of new projects? Overbuilt?
Negative rates are not available to the man in the street, except perhaps in Denmark. Most everywhere else it's a subsidy for the banks closest to the central banks, in effect, a subsidy for their club. They mark up to lend to the rest of us. Just look at the spread on credit card interest. Quite an egalitarian system there, if you are a money center bank paying 0, or making a positive return from borrowing. Not so much for some (many?) fools paying 32%.
In the long run, it looks like we get inflation in spades... so if you think you need it, get it now, especially if made in you know where. Trump's tariffs will start the ball rolling I think. Meantime, Armstrongs piece this AM on Lebanon, assuring they will not break the peg on their currency. We know what that means. According to Armstrong, the implosion begins from the outside in. There is not much more outside than Lebanon at the moment.
Interesting times.
On Tue, Sep 3, 2019 at 7:33 AM J wrote:
Silver may go absolutely ape as folks rush for the exits
Suppression must soon be
As the would-be escapees are clubbed, for the greater good, democratically
On 3 Sep 2019, at 9:29 PM, J wrote:
Am also trying to work out whether the govts issuers of negative-rate debt will pay a negative tax to the holder of the debt security, as the negative-yield debt is actually an asset, or alt-asset.
And folks are making a fuss about little Hong Kong trying to protect asset value by demonstration and alt-demonstration riot
Wait until asset-protection protocol go global
On 3 Sep 2019, at 9:27 PM, B wrote:
I note that PM's may be waking up to that.
On Tue, Sep 3, 2019 at 7:24 AM B wrote:
In Denmark you are supposed to be able to get a mortgage, and the govmt pays you interest for taking out a loan?
J, you should be lobbying for that in HK... <g!>...
Currencies are a means of facilitating trade, value tagging, and storing wealth, even temporarily.
CB's are F*ucking with that at everyone's peril, because, what else have they got?
This period of time will be looked back on as some kind of mass insanity.
On Tue, Sep 3, 2019 at 7:15 AM J wrote:
Read the article
If I understood correctly, negative-yielding debt is, to the issuer, an alt-asset, one that yields a positive return, especially if the proceeds are invested in dividend-yielding equity, particularly if such dividend is generated by hard assets, harder the better, and gold-mining best
Whoa!! Because not everyone can issue negative-yielding debt, and am wondering which side pays tax on the yield?!
Phucked up world
On 3 Sep 2019, at 11:08 AM, M wrote:
The Disaster of Negative Interest Policy
blog.evergreengavekal.com |
