negative interest rate

Federal Reserve Unable To Bailout Investors In The Next Crash

The Federal Reserve is trapped in a situation where they wish they could raise rates just so they could have some ammunition in terms of the future ability to cut rates during next recession. They will need to cut rates 4% (which would result in rates at negative 3.5%) to stimulate but to do so they have to first raise them 3.5%. But that would create a recession and destroy their credibility. During the next crash they might be tempted to think that propping up stock prices by buying stocks would somehow help the economy. To do this they would need to get the law changed. But Republicans  in the House of Representatives tend to be Hard Money types that

October 21st, 2016|mayflowercapital blog|Comments Off on Federal Reserve Unable To Bailout Investors In The Next Crash

Rates Likely To Stay At Current Levels For A Year or Two

If lowering interest rates doesn’t transmit benefits to those most in need and damages future retirees, pension beneficiaries, life insurance companies, banks, etc., then perhaps there is no significant benefit in further lowering of rates. The old rule of thumb that the Fed has to cut rates 4% to stimulate would imply that the economy needs negative rates but this is not feasible because of behavioral economics consumers won’t tolerate this in terms of how it would affect insurance, bank accounts as well as pensions. Ultra-low rates can provoke naïve investors into foolishly lending to junk bond type of borrowers such as undocumented P2P loans, BDC’s, etc., but on a risk-adjusted basis these are bad for investors who were planning

October 18th, 2016|mayflowercapital blog|Comments Off on Rates Likely To Stay At Current Levels For A Year or Two

Are Negative Rates Ending?

In recent days more experts have spoken about the dangers of negative interest rates and how these risks will hurt the banking system leading to political pressure on central banks to stop their manipulation that created negative rates. I have been saying this for several months that negative rates will hit a dead end and central banks will be forced to back off. Bill Gross, a bond expert, said that the Fed’s actions of continuing to double down its bet on ever-increasing Quantitative Easing and a movement towards zero rates are not limitless because if investors lose faith in the monetary system and flee it by moving into gold or Bitcoin then the Fed will have lost its bet. His

October 4th, 2016|mayflowercapital blog|Comments Off on Are Negative Rates Ending?

Real Rates Negative For 26 Years

The cliché “There’s never been negative rates in 5,000 years” is wrong. The act of making a deposit in a bank only to see an uninsured bank fail and experience a huge loss of your account is like a form of negative total return for a bank account, which is like a negative rate of yield. This happened many times for 150 years before the 1934 FDIC legislation. When there were no banks people incurred many costs, including theft, to store their gold, so that was a form of negative “interest” on money. I saw an offer from a Custodian to hold physical gold for clients but at cost of 0.75% a year, so if one views gold as money

September 19th, 2016|mayflowercapital blog|Comments Off on Real Rates Negative For 26 Years

Reduction In Central Bank Credibility Coming Soon

The key error of economists is assuming all that matters in order to stimulate the economy is to lower interest rates; they ignore that this is deflationary and seriously damages consumer confidence for those who are savers or who lack desire to plunge into over priced stocks. Also economists fail to realize how consumer psychology can’t handle negative rates if implemented by any type of insurance company, especially ones offering Cash Value life insurance policies or annuities and those companies can’t survive either. Economists fail to realize that the entrepreneurial spirt of entrepreneurs is a key reason why mangers go ahead with new business projects that create growth and this decision is hardly influenced by low rates. If jet fuel

September 12th, 2016|mayflowercapital blog|Comments Off on Reduction In Central Bank Credibility Coming Soon

Japan Bond Market Rejects Negative Rates: Global Low Rates To End?

Japan’s government bond yields have been rising from negative rates up towards zero in the past six months. They have risen in a dramatic reversal of their downtrend. Japan is uniquely in a long term soft depression so it is difficult to compare to other countries. However, the recent repudiation by the market, of negative rates, is very interesting and hints that the Invisible Hand of the global market won’t tolerate them. I think ultimately throughout the world investors will rebel against negative interest rates. It may be partly by using paper money cash in a vault to avoid being charged a negative interest rate for a deposit. And it may be most likely in the form of severe problems

September 6th, 2016|mayflowercapital blog|Comments Off on Japan Bond Market Rejects Negative Rates: Global Low Rates To End?

When Will Negative Rates End?

The maddening descent into global negative rates seems like it will never end as central banks continue to double down on their mistakes. Factors that will lead to its end are the growing problems that banks and insurance companies are experiencing as a result of negative or zero rates. These industries have a “must have” need for normal rates so that they can operate. If an extreme form of negative rates is implemented they will be unable to function. Then ironically the Federal Reserve will have to bail them out as they did for Bear, Stearns and AIG in 2008. This would result in voter anger at favoritism for rich banks, like what happened in 2008 with the TARP bailout

August 24th, 2016|mayflowercapital blog|Comments Off on When Will Negative Rates End?

When Will Negative Rates End?

Economists may be coming around to admitting QE and negative rates don’t work in a year or so. However, what happens to academic ideas is that when a particular school of thought is discredited their developers dig their heels in and don’t want to admit they are wrong. Thus central banks may try more of these dangerous placebos for a few more years. Investors should not count on the Fed admitting they were wrong and backing off from their misbehavior of QE and moving toward ultra-low rates. I believe the stock bubble has gotten so bad the Fed is trying to scare investors with threats of a rate increase but it will either not happen or it will be a

August 22nd, 2016|mayflowercapital blog|Comments Off on When Will Negative Rates End?

When Will Negative Rates End?

In the past 12 months there has been a massive increase in the amount of global negative interest rate bonds. Assuming that people who have resources to invest are often over age 45 and many people between 45 to 60 are actively preparing for retirement by doing long term investment planning then most people who have assets are mentally in the same position as a retiree in the sense that they care about being hurt by low yields. The pre-retirees anticipate or discount the future and act accordingly. Thus capital markets, to the extent they are influenced by retail individual investors, get a message that rates of return will be low and thus personal spending power and personal consumption psychology

July 20th, 2016|mayflowercapital blog|Comments Off on When Will Negative Rates End?

Lower Yields Are Warning of A Crash

Today the ten year U.S. Treasury yield went to 1.63%, the lowest since Dec., 2012. In July, 2012 it got 1.44%, the lowest ever, so the yield is close to an all-time low. It is because interest rates are going down to negative yields for sovereign debt in Europe and Japan so foreigners are moving into U.S. bonds. The Federal Reserve would like to raise rates so that if a recession comes then they can lower rates. But this is not possible because of the massive inflow of funds into the U.S. The old paradigm of adding inflation to real GDP to determine what is a fair ten year Treasury interest rate (which would be about 3.5%) is no longer

June 10th, 2016|mayflowercapital blog|Comments Off on Lower Yields Are Warning of A Crash