Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Race to the Bottom Gaining Traction: Negative Interest Rates Amplify Currency Wars

Interest-Rates / Currency War Jun 02, 2016 - 06:50 PM GMT

By: Sol_Palha

Interest-Rates

Ability is a poor man's wealth. M. Wren

If you had told individuals before 2009 that we would be living in a negative rate environment in the near future, most would have treated you like a lunatic that just escaped from Ward 12.  Fast forward a few years and viola, bankers all over the world are embracing negative rates.  China devalued the Yuan once again, adding further fuel to the already blazing fire.  The Fed will have no option but to lower rates and then Jump onto the negative rate bandwagon. Don’t listen to the nonsense the Fed has been mouthing for months that all is well. We can already see the all is good slogan breaking down to “it’s not as good as we thought" slogan; this will eventually change to “oh my God it’s darn right ugly out there” and we need to lower rates to prevent a catastrophe slogan.  


The same strategy has been used again and again; it works marvellously so why stop now. The masses like Pavlov’s dogs have been trained very well, so there is absolutely no need to change the game plan.   Keep the lie simple, repeat it over and over again and the masses will swallow it hook line and sinker.  Crowd psychology clearly illustrates that the mass mindset is self-destructive; individuals with this mindset claim they are looking for something better but their actions speak otherwise.  We will cover this issue in more detail in a separate article.

The first experiment was to maintain a low rate environment; the second one was to Flood the system with money; this was achieved via QE.  The third phase was to get the corporate world in on the act of flooding the markets with money. This was achieved through massive share buyback programs.  The next stage is to introduce negative rates to the world to fuel the mother of all bubbles; this program is currently underway.

Central bankers are aware that people will save more and more due to fear; uncertainty is a great catalyst and moves a person from state of calm to a state of panic rather rapidly. They know that many will continue to remain wary even when banks start charging them a fee to hold onto their money. People are saving more and more because of uncertainty; they don’t know what the future holds, so they save even though it means taking on a loss. Experts will state that central bankers miscalculated, but the truth is that they did not miscalculate; this event was planned years in advance and with meticulous precision. Watch with surprise how the rate hike slogan will fizzle into "the cut the rates slogan"; Yellen already sounds more dovish with the passage of each day.

Many experts have stated that negative rates are a bad idea; this is true to a degree, but it depends on the angle of observation. If you sit down and take no action, then the response is “yes they are terrible”. However, if you are proactive, you can use negative rates to your advantage. For example, this family is getting paid interest on their mortgage instead of paying interest to the bank. In other words, they are getting paid to take a mortgage.

Stock markets will trend higher

Cheap Money leads to speculation, and the stock market is the best place in town to speculate. Expect corporations to borrow even more money and use these funds to buy back their shares thereby artificially boosting EPS. There is no shred of decency left in Wall Street and as corporate officers bonuses are tied to performance.  These chaps will do whatever it takes to boost share prices, even if it means creating an illusion that earnings are rising, when in fact, they could be flat or even dropping.  All they want to do is make a killing; they could care less about the small guy.  It’s easy, and Congress has deemed it to be legal, so there is nothing to stop them and everything in place to encourage this behaviour.  We covered this topic in detail several times, over the past 12 months and repeatedly stated that the every pullback was to be viewed as a buying opportunity.

Property prices will rise

Negative rates will lower the cost of mortgages and in many cases; individuals will receive a check from the banks for interest payments on the mortgage.  Negative rates are already fuelling a property bubble in Sweden, and real estate prices have surged significantly in the U.K;  it’s a matter of time before we experience the same phenomenon in the U.S. Bankers will almost certainly lower lending standards in the US; Barclays Bank has recently announced 0% down mortgages.

 Improving GDP

While such a proclamation appears insane, the chart below clearly reveals the opposite to be true. Negative rates do create the illusion that the economy is improving, and the masses seem to agree silently.

Denmark’s GDP started to rise, and that is and was the whole purpose of the program. Note that shortly after the crisis of 2008-2009; rates were pushed lower faster than at any period before in the last 20 years; the lower they dropped, the higher the GDP; in fact, one can conclude that it’s in an uptrend.

Game Plan

China’s decision to devalue on the Yuan clearly illustrates that the “devalue or die” program is being embraced worldwide. Nations will continue to devalue their currencies in a bid to stay competitive; the global economy is weak and only hot money is creating the illusion that all is well.  Mass psychology indicates that the masses love to be told a sweet lie as opposed to the blunt truth. In that sense, they will get what they secretly desire, a market that looks magnificent from the outside but is rotten to the core from the inside. As we have yet to embrace negative rates, there is a lot more upside left in this market. This market is not going to soar higher because of fundamentals; fundamentally speaking this market should be in the toilet. It will soar higher because of hot money.  We expect property prices to continue trending upwards in the US and eventually when lending standards are lowered; we expect another property bubble to unfold.  Regarding the stock market, the sentiment is negative, and a lot more money will flood this market once negative rates are here. The stock market will most likely continue trending higher, but don’t expect it trend upwards in a straight line.  Traders should be prepared for wild swings in both directions.

The way of paradoxes is the way of truth. To test Reality we must see it on the tight-rope. When the Verities become acrobats we can judge them. Oscar Wilde

by Sol Palha

www.tacticalinvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

© 2016 Copyright Sol Palha- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 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