A Destabilizing Policy - by Gordon Long and John Rubino - Feb 23, 2015
Published 02-23-15
32 Minutes
What is the significance of the dramatic shift from ZIRP (Zero Interest
Rate Policy) to NIRP (Negative Interest Rate Policy)?
This is a startling development that changes the investment landscape,
strategies and business models of many traditional industries. We have
watched rapid developments in Europe unfold with:
NIRP from the Central Banks of:
- ECB,
- Switzerland,
- Denmark
- Sweden.
We have NIR Bonds from :
- Germany's BMW,
- France's LVMH,
- Britain's BP,
- Swiss Nestle
When money becomes less than free and you get paid interest to borrow
all sorts of distortions begin to happen.
Stock Buybacks
Negative interest rates are inviting companies to be "PAID TO BORROW
MONEY" and then use the proceeds to buyback their shares, boost eranings
per share and reduce dividend payments.
It has fostered an explosion in stock buybacks
Fractured Business Models
The question on the table that few can answer is: How do these
industries survive with negative rates?
- Pension Plans,
- Insurance Plans,
- Money Funds,
- Retirement Plans
Industries which have been considered to be the safest places to place
money are now being forced into becoming quasi hedge funds to achieve yield.
This is a towering change in the world.
If because of this, any one of the participants in any one these
industries were to 'blow up' it would add greatly to the already skeptical
mistrust of investors.
It is highly likely to trigger a' risk-off' shift 'in a heart beat which
would impact credit flows and liquidity! The same thing that happened in
2008.
With Low Interest Rates Not Working - Did The Central Banks Finally Lose
Control?
First ZIRP, Now NIRP w/ John Rubino
