Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Investors Earn 6% When Others Are Losing Money

Companies / Investing 2015 Mar 16, 2015 - 11:58 AM GMT

By: Money_Morning

Companies

Peter Krauth writes: We're living in crazy economic times.

The race to debase and stimulate has taken us into uncharted financial waters.

Zero interest rate policies (ZIRP) are being replaced with negative interest rate policies (NIRP).

It's an upside-down banking environment that presents some serious challenges.


But investors who are willing to get just a little creative can profit nicely, even as others lose money that just sits there.

And, even better, the shares are trading at an 8% discount now…

"Financial Repression" Is the New Reality

Until a few years ago, few of us had ever heard the term "financial repression." Today, we're all living it.

Things are now so backwards that some are being paid to borrow money, while others are paying to leave their funds on deposit.

In Denmark, entrepreneur Eva Christiansen applied for a small business loan. When her bank called with news that her financing was approved, they informed her the interest rate was -0.0172%. That's a negative interest rate. Incredibly, it means Christiansen will be paid to borrow money.

To be sure, that was a pleasant surprise. But the obverse of this coin is decidedly less bright.

Also in Denmark, student Ida Mottelson, vying for her master's degree in health sciences, was contacted by her bank. In her case, she was told she would have to pay a 0.5% fee to leave her funds on deposit. She's now looking for another bank to do business with.

This backwards treatment goes beyond personal banking, too.

Just recently JPMorgan Chase & Co. (NYSE: JPM) decided it would soon start charging large institutional clients on certain deposits.

Hedge funds, foreign banks, and private-equity firms will be most affected. JPMorgan is reacting to new federal rules which discourage banks from holding deposits considered at risk of fleeing when financial stresses or crises present themselves.

Must Investors Take a Loss for Safety?

Europe appears to be the epicenter of this NIRP phenomenon.

Already Switzerland, Sweden, and Denmark foist negative interest rates on some bank deposits.

Australia's Commonwealth Bank estimates close to 25% of worldwide central bank reserves now carry a negative yield, meaning they're losing money on those funds.

Germany just issued $4 billion worth of five-year bonds paying a negative interest rate. Some investors have gotten so desperate for safety; they're willing to accept less than their full capital back after five whole years. Others are buying those bonds, betting rates will go lower still, and pushing bond prices up in the process.

In places like the Netherlands, France, Belgium, Finland, and even Italy sovereign bonds are being issued with negative yields.

As crazy as it sounds – and it is pretty crazy – it's a result of central bankers desperate to stimulate spending in an effort to boost inflation. Plain and simple.

And it's having some serious unintended consequences.

The Swiss National Bank's introduction of negative interest rates could bring dire consequences to Swiss pensions, according to UBS.

Lukas Gähwiler, head of UBS Switzerland, said "It is at least as serious for the economy as ending the floor to the euro, and could even be more serious." His bank's analysis concluded negative rates could weigh on the real economy, cause interest rate risks, compel banks to consolidate, and lead to severe consequences for pension funds, both government and private.

To wit, pension funds restricted from risky investments are in danger of becoming progressively underfunded. The only remedy may be resorting to hikes in contributions. Old age pensions are going to see funding gaps widen even further.

Believe it or not, these shenanigans could go on for a while yet.

I say that because, according to James McAndrews of the Federal Reserve Bank of New York, economists estimate the limit is when interest rates hit -0.5%. Beyond that level they figure depositors may begin to withdraw their funds and sit on physical cash instead.

Yet a 2012 study by the European Central Bank estimates the cost of private cash transactions is 2.3%, pointing to a possible tolerance for even lower rates.

But at some point, rather than pay to park their money, people and businesses will prefer to withdraw their cash and sit on it. If we do indeed get there, that could mean a great business opportunity for secure cash storage services.

Sidestep NIRP with This Investment

But storing physical cash comes at a cost, as proper facilities, security, and monitoring are a must. And done right, they're not cheap.

Meanwhile, individual investors need to look at creative ways to manage their cash positions, so they're not faced with a net loss on liquid funds.

One option I like is the idea of placing part of one's cash allocation in a higher yielding investment. Municipal bonds, or munis, look like a good option for this. Most munis are exempt from federal income taxes, and some of them are exempt from state and local taxes (these are known as triple-tax-free). And they're safer than you might think, with defaults only a tiny fraction of what's typical of investment grade corporate bonds.

What they aren't is risk free. But buying when undervalued with a tolerance for at least some volatility is the proper approach.

The Nuveen AMT-Free Municipal Income Fund (NYSE: NEA) is a closed-end fund holding an array of municipal bonds, and currently yields an attractive tax-free 5.95% dividend. Given that this payout is tax-free, it's the equivalent of earning 8.5% for an investor in a 30% tax bracket. What's even better is buyers get a bit of a safety cushion, since the fund's currently trading at an 8.1% discount to its net asset value (NAV).

So don't let negative interest rates rattle you.

Avoid financial repression, and use inventive solutions to manage your cash. It's your best option to fight back.

Source :http://moneymorning.com/2015/03/16/earn-6-when-others-are-losing-money/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules