Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

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