Cumberland Advisors’ David R. Kotok talks about negative interest rates, NIRP, and says the European Central Bank’s (ECB) Christine Lagarde has a difficult task right now. He also discusses China, the pork shortage, and the impact of viruses on the global food supply. Running time 25:02, David is introduced at the 10:45 mark – Play […]
Excerpt from ForexLive’s “Negative interest rates aren’t working” Nov, 25 2019 Author: Adam Button There haven’t been any victories in the negative-rate world. The ultimate test of any theory is in the results. The idea behind negative interest rates is that they will spur borrowing and economic activity, leading to inflation and a weaker currency. It […]
Negative-interest-rate policies (NIRP) have been criticized by some (me included) and pursued by others, including Europeans aligned with former European Central Bank (ECB) president Mario Draghi. However, growing numbers of Europeans are becoming disenchanted with NIRP, and some are now shifting away from it. In our view, negative rates have, predictably, damaged growth for over five years. The ECB’s new president, Christine Lagarde, seems to understand that she faces a daunting task in extricating ECB policy from reliance upon negative rates.
Here is an excerpt from her first speech:
“In my view, since our challenges are common ones, we must meet them with a common response. This involves moving towards a new European policy mix, which has a number of key elements. The first is monetary policy, which I start with because it is my area of responsibility and which will undergo a strategic review due to begin in the near future.”
Hat tip to Kevin Humphreys for the reference. Kevin is manager, European money markets, for BGC Partners. He is based in London. Kevin has kindly given us permission to share his observations with our readers. We completely agree with his view.
“Having had a few references of late from board members to potential side-effects of European Central Bank monetary policy, it was perhaps of little surprise that the ECB in their financial stability report should highlight that sub-zero interest rates have forced large investors to take on more risks and businesses to take on more debt. Equally unremarkable were the other two main observations, that bank profitability prospects have weakened and that mispriced assets may represent a vulnerability.
Peter Boockvar, a Camp K fisherman and a super-sharp analyst, sent the note and chart below. We thank him for giving us permission to share his note below. It is logical that gold would outperform $14 trillion of negative-interest-rate sovereign debt issued by creditworthy governments like Germany and Switzerland. Remember: Gold counts as a monetary […]
On July 29 we published a long piece entitled “Cash, NIRP & Bonds” (http://www.cumber.com/cash-nirp-bonds/). We published Part-2 on this past Monday. See http://www.cumber.com/cash-nirp-bonds-part-2/. Having talked about cash, let’s now add negative rates to the calculus an investor must perform. With a positive rate, we can compute the sensitivity of a bond’s price to a change […]
On July 29 we published a long piece entitled “Cash, NIRP & Bonds” (http://www.cumber.com/cash-nirp-bonds/). Now we see a German bank succumbing to pressure and starting to charge its customers a pass-through of the negative interest rate that the commercial bank is paying to the central bank. In the eurozone, the lowest negative rate is minus […]
Take a look at the $100 bill, ¥10,000 note, and €100 note. They are all pieces of paper with an intrinsic value near zero. Their money-like characteristics establish the value for each bill or note. With roughly the same monetary value, give or take a fluctuating amount in foreign exchange markets, they can each buy […]
We did some realignment of our tech-sector holdings, as our clients know from their portfolio reviews. The changes are nuances within the ETF strategy. We sold XLK. It is the classic large-cap sector spider for tech. XLK has a year-to-date performance of about zero but is up about 9% from the February 8th low. Its […]
The New York Times headline read “Negative 0.5% Interest Rate: Why People Are Paying to Save.” Here is the link to a story that gives some perspective on this issue of negative rates. My colleague, Chicago-based Bob Malvenda, notes that the hundreds of comments on the NY Times piece are instructive, revealing understandings and misunderstandings […]