For those wondering why anyone would buy such a thing, consider:
- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world.
- A holder of a bond earns a capital gain (bond goes up in price) when interest rates fall. In that sense, zero is no limit at all because there can always be a buyer willing to accept an even lower (more negative) yield.
- Bond investors are well-aware of the two points above. When they sense that interest rates and/or inflation are headed lower, they know they can profit by buying, regardless of yield.
- Anticipated rate of inflation matters a lot because investors seeking return through yield focus on real interest rates (nominal rate - inflation). Inflation can be negative as well (deflation). If inflation is lower (more negative) than the bond's nominal return, that's a real positive yield. And that positive yield is locked in for the term of the bond, which in the case of the story is 30 years.
- The European Central Bank has repeatedly signaled its belief that zero is no barrier and that negative yields will be tolerated indefinitely. The ECB stands ready for quantitative easing (QE), in which the central bank buys bonds with money it creates from thin air. Investors know this and this compounds the incentive to pile on and buy bonds to enjoy the capital gains (and real returns if the investor believes that deflation is inevitable).
It's likely that all these factors combine to create the current environment. How long all of this can continue is anybody's guess because the situation is without precedent.
It's as if the financial crisis of 2008 was never resolved - just papered over through massive central bank purchases of treasuries and stocks (Japan's central bank owns a major fraction of the value of the Japanese stock market at this point).
The best explanation I've heard for negative rates is this:
Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc.
Now instead you have a million dollars in cash. In the current environment, where more people want to put money into the bank than take it out, the cash also has no value to the bank. They can't loan it out again because no one wants to borrow that much. So they charge you for storing your money. This is how they make a profit. By slowly taking your balance, since they can't make money loaning it out.
A negative interest rate basically means more people want to save money than spend money. When the government offers negative rates, it's because they want people to spend money instead of save it. When a bank does it, it's because more people are putting money in than taking it out.
I have some visibility to a tiny community bank started by some folks and then grew into a larger bank over time. They were mostly a consumer bank (consumer banking, small business type loans, etc) with some side banking related activity.
Paradoxically (well seemingly so) the best time for them to buy or merge with other small community banks was if there was an area they wanted to be in ... that was doing well economically. That was the time to look around at the local banks that they might want to pickup, or those banks actually came to them.
Local small (usually rural / suburban) community banks would find themselves in a bad spot as the locals were doing well financially, paying off loans early, not really borrowing much, and the locals with their extra money started stuffing it into the local bank. Businesses expanded, but they were able to do so with short term or very limited loans.
The local small bank found itself flush with cash, and nobody who wanted it (well not nobody but you get it). That was the time for the other bank to swoop in and save them as they could provide a larger regional reach (and some side businesses that benefited from being backed by all that cash) to areas that still wanted that money for loans.
> They can't loan it out again because no one wants to borrow that much.
Which is why this is a signal that the economy is failing. The underlying behavior which drives the value of currencies is that the currency is being used. If people just stockpile cash then the value of that cash is eroding as people find fewer uses for it.
Since the productive use for debt is as an engine for growth, if there isn't anybody looking to secure debt for growth then we're seeing the long-term effects of a loss of dynamism in the economy, which is detrimental pressure on the underlying economy itself. It's not sufficient to try to persuade people to spend more on consumption (people are always incentivized to consume) - people need to be incentivized to take risks for growth, which they currently are not.
What the central banks will realize is that you can't incentivize people to take risks by holding a financial gun to their heads - that only incentivizes people to seek further safety. You need to, perhaps paradoxically, make it safer to take risks. If the ordinary control for doing so (reducing interest rates) isn't working, then there's a compounding factor which is preventing that safety from being felt.
I feel like I still don't understand negative yields, despite really trying to.
Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy these bonds?
A lot of financial transactions and central clearinghouses require participants to post collateral. For example if an insurance company enters into an interest rate swap with a bank, both sides will have to post some percent of the contract's notional value in escrow. This protects both sides from counterparty risk (i.e. what if the insurance company goes out of business and can't pay its side of the swap).
The collateral needs to take the form of low-risk, liquid securities. Usually government bonds. Bringing a big bag full of cash to a derivatives exchange is not accepted. If you're a big financial institution, you have no choice but to buy government bonds. Even if they're negative yielding.
Since 2008, there's been a massive increase in financial regulations. Policy-makers have desperately pushed to make banks and other financial institutions less risky. That mostly means much higher capital requirements and more central clearing. In turn that means the demand for holding high-quality government has exploded.
This is an example of how to write a good article, I think the first sentence answers your question:
"Germany sold 30-year debt at a negative yield for the first time, as investors desperate for safe assets bet that further falls in yields will boost the value of the bonds in the future."
The investors buying these bonds are simply betting that these bonds will increase in value (which will supposedly happen if central banks cut interest rates more in the future).
These bonds don't pay out for 30 years and I bet few if any of the institutions buy them intend to hold them that long, they plan to sell when the value of the bonds rise.
So why not just park that money in cash? Well let's say you have $1M and you think bond yields will continue to fall. If bond yields fall further, then the value of these bonds increase, then you can sell them and realize a return.
However, you also want to think about any way that your cash holdings could increase. Could a dollar (or euro, or whatever currency) tomorrow be worth more than a dollar today? Yes, if there's deflation then it could make sense to just hoard cash under your mattress and realize that it's purchasing power is growing!
But these investors are assuming deflation is not too much of a risk - they believe central banks will act to quickly slash interest rates - both increasing the value of these bonds and decreasing the risk of deflation.
Markets are pricing in future interest rate cuts, which is probably not a bad bet to make. Markets a probably predicting interest rate cuts because they think various economies are weakening and central banks will cut rates.
Individual investors would probably not buy these. It's a lot harder to keep $100m under the proverbial mattress: not FDIC-insurable, literal cash requires guards, etc. And anything else you buy to store the value (gold for instance) has higher volatility and risk than these negative-interest bonds. So the theory would go, anyway.
If it's a large amount of money, you might decide to put it in a bank so that you don't have to worry about it being stolen.
Once it is in a bank now you have to play the game of trying to figure out the comparative risk between the bank not being around any more 30 years from now, versus the chance that the German government will have forgotten how to operate the money printing presses.
Of course, since this is the EU, I'd actually be rather worried about the latter. Unlike sovereign currency countries, EU countries do not just get to print Euros. A lot can happen in 30 years, especially to a country with 1.5 births per woman like Germany.
If you take out a bunch of cash you have to store it. If you move it to an international market you suffer currency risk. If you think that the Euro is going to go up like crazy (if you forecast deflation) and you also think that every other European government has a pretty bad default risk, then you'll happily accept negative yields. Don't forget that it costs money to guard a warehouse full of cash.
This means that lending money to the German federal government is considered less risky than just “holding onto your money”. You might think of money as a physical asset (cash), but really it’s far more varied, and for amounts that exceed insured deposit thresholds, you are not protected by the risk of failure (or “bail-in”) of a banking institution. Besides, as others have pointed out, these make little sense from the point of view of an individual investor and are going to be parts of more integrated risk-calibrated portfolios of assets.
Your confusion comes from focusing too much on what happens at maturity.
This is the least important thing here.
Bonds have two ways of providing a return. The yield, and the price of the bond itself.
Lower yield means greater price of the bond. They are always inversely correlated.
Even lower yield means even greater price of the bond.
Because of worldwide policies, Its a bond bull market. The greatest bond bull market of all time and there is no exit.
Government creates new bonds at market price. Their independent Central Bank buys those bonds at market price giving newly created money to the government or traders. Market price is always a premium to the prior price. This action devalues the currency, otherwise known as causes inflation, otherwise known as people’s share in the currency stock is diluted.
So nobody needs to care about the yield. Nobody is thinking “well golly I’m going to use a few fractions of a dollar for the next 30 years” theyre thinking bonds to the fckin moon
Buy high sell higher directly to the central bank.
Benign attempts at economic stimulus have turned into a full blown currency war between monetary unions and nation states. The whole point is to get people to think “hm maybe my money isnt doing so well in a bank or in my mattress, maybe I should circulate it in risky investments” , and since people are so willing to pay for the privilege not to do that, the yields will go deeper negative. This prompts other monetary unions to cry foul and consider these actions unfair and uncompetitive, and so they do the same thing to devalue their currency to compete.
Any time you hear someone talk about responding to currency manipulators or reacting to the trade war by lowering rates or devaluing their own currency, just remember:
Currency is mildly decoupled from purchasing power.
Here's how you look at it. You give me $20K today, and I promise to give you $19K back in 30 years. The question is two-fold.
(1) What else would you do with that money, that would offer you a better return, factoring all externalities. Holding cash isn't free once you account for risks like getting robbed holding bills your house burns down, you get fake bills, and potentially-negative interest rates at a bank. If you see the market going down you're not going to put it there either.
(2) How much will $20K today dollars buy you as compared to $19K future dollars? If you're betting on deflation, then that $19K future dollars may buy you a house where $20K today dollars may buy you a car.
This is the real reason the US yield curve looks the way it does.
All other developed countries are selling negative or near zero government bonds. This has lead to huge international demand for US 30 year treasuries.
US treasuries are giving a greater yield than Italy or Spain for reference. Of course there will be huge demand.
Central banks are no longer islands. They are part of the global economy and a part of a market just like any other. The US acting alone to raise interest rates won't work like it did in previous cycles.
I understand that policy makers think that low interest rates will encourage people to put their money into investments like the equities or a business by forcing people out of saving. But, have they ever considered that they may actually be achieving the opposite? Someone who just turned 65 (like aging Europe), really really needs to save in safe assets. Negative yielding bonds don't change that need! So, instead of investing in risky assets, they may simply take the negative yield and save even harder to make up for the negative yield thus reducing spending even further and hurting the economy.
I’m starting to entertain the idea of a massive bubble in bonds. Is inflation really never going to show again? I can’t understand why anyone would want to hold a fiat currency for 30 years for no return.
Is it due to portfolio theory where the assumption is stocks and bonds yields have inverse correlation and the way to manage risk is to have a correct ratio? Due to global QE there is too much money floating without enough to invest.
So it is a zero coupon bond sold above par, but this doesn't mean the bank isn't making money off of it. There are a lot of technical reasons that these can be purchased (such as a tax advantaged stutus or a requirement to hold certain duration on a portfolio). I'm an expert on German bond market, but I expect the actual yield to be positive after taking into account other factors (or there being some regulatory reason). Last time I saw an article on a negative yield mortgage, there were tax resons it was actually coming out positive.
I'm looking at the bond on Bloomberg right now and it's showing a yield of -0.14% with a price of EUR104.54. All things equal, if you buy this bond right now and hold it to maturity, that will be your yield. This is an after-tax yield.
I'm not sure what bank you are referring to in the first sentence. These are bonds issued by the country.
Slightly OT but I’ve been trying to google this for a while and there are people reading this who will know where I can look:
If a government (pretend US if it helps) stopped collecting taxes, and instead funded the budget by printing money every year, who would be the winners and losers compared to the current system? Where can I go to learn more?
If central banks weren't setting the price of credit by fiat, what would a "market" risk free rate be? Have any economists tried to answer this question?
Edit: not sure why I'm being downvoted for this...?
Another reason, I've not seen mentioned, is that you think bonds will go even more negative, so you buy now, to avoid having to buy a much more negative rate later.
Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.
>what are you doing to weather the (inevitable) storm?
Stay invested in equities. Keep some cash on hand as an emergency fund in case you lose your job, but just don't sell your stocks when the market is down. Stay diversified and stay in the market.
Stay the course. Don't try to time the market. You just need to avoid the irrational decision to pull your money out of the market because you'll most likely get it wrong and be worse off.
We've had 10 years of prosperity which should have been ample time to secure an emergency fund to weather the storm.
If you have stock gains that you need, and can't live without - consider your exit price, and perform proper portfolio maintenance.
Recession indicators have been in play for about 2 years. If nothing else, be much more aware of your high downside risk - and at least scenario model if we go down to multi-decade lows. Specifically in any items with negative EPShare, or not necessities. We're in the cycle now that hits equities -> mid-consumer spending -> business spending -> consumer spending -> real estate. Don't consider the specifics of this message, but the generalities and apply to life
Prepare for years of lower rates of return; If you own property, you will be able to re-fi in a few years to some very low rates. Cash is king for fire sales - lots of people will be going super broke the next 5 years. House prices will de-value enough, so don't buy property for the next 1-3 years. Stock market can revert to 50% of current values.
Edit: used this technique to purchase my first house, firesale. Will do it again this round, along with other lessons learned ;)
Edit 2: Listen to your own companies investor calls (if large enough) - you can predict upcoming layoffs. If you need a new job, do it now before wages stagnate or deflate some. Place yourself in a line of business that is close to a revenue stream of the business, they're rarely cut.
Continue investing passively through your 401k, Roth, and HSA. But start spending less, and sock away that extra cash into high yield bank accounts. That way you're investing for your future, while covering any emergency needs in case of job loss. I've been working my way up to a 6-9 month buffer for the last year.
If the capital flight away from the rest of the world is bad enough, US markets could even go up during a global recession. That's the thing about the stock market, it goes up and down and you can never guess which.
A cash emergency fund is there to help you weather financial storms, that's its sole purpose.
I have a six figure US stock position and I'm not going to change anything I do as long as I remain employed. Save for retirement/long term in the stock market, save for big ticket items in cash (I have a new car fund, for example). If I lose my job I'll have to stop contributions until I get another job. If I remain unemployed longer term I'd have to tighten my belt on frivolous purchases.
>> what are you doing to weather the (inevitable) storm
Investing every two weeks into my standard allocation that I've decided on, rebalancing when necessary. Anything beyond that is speculation. Especially the concept of an inevitable storm coming. When, how, and where that happens is not something too many people know.
Look at the S&P 500 index from early 2008 to say 2012. Governments will enact policies to prop up the stock and bond markets, as they always have.
Our entire civilization is held up on the promise that financial market indices go up over time, except for temporary recessionary periods. We just accept that retirees cashing out at the wrong time will be victims of 'collateral damage' during these 'market corrections'.
Everything from job growth, to the pension funds that you contribute to, to the municipal bonds governments issue to fund projects, rests on this one core assumption.
I've been trimming positions to increase cash on hand, as much as possible these past three months. I'll likely put it in some of the more stable industry ETFs moving forward, and won't bother with shorting index funds since we don't know exactly when/where the major hits will come.
My take is that this trade war is irrationally based on animosity (even if the sentiment behind it is rational) so my hypothesis is when the tariffs are finally enacted you'll start to see a bigger shift as fund managers figure out that yes, the trade war is here.
Same as always: improve skill-set to 1) live more cost-efficiently 2) provide more value at work. 1) definitely leads to better savings rate over time, 2) probably does.
Not in the US nor have a large $$$ position, but as someone who dabbles a bit in options trading on the side, I've got to say: this volatility is great.
I'm reducing margin (borrowed money for investing) to zero or near-zero. I'm also building up a savings account. Some of the Democrats could very well push for a pre-election recession in order to make Trump look less re-electable.
Like most economic and finance topics on this site, there seems to be a lot of people posting opinions/"facts" without really understanding the subject matter.
The reason why bonds are trading at negative rates in the EU are the following:
* The ECB deposit rate is -0.40%. Everything else is benchmarked against that
* The majority of the EU is either currently in a recession or rapidly heading there
[+] [-] apo|6 years ago|reply
- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world.
- A holder of a bond earns a capital gain (bond goes up in price) when interest rates fall. In that sense, zero is no limit at all because there can always be a buyer willing to accept an even lower (more negative) yield.
- Bond investors are well-aware of the two points above. When they sense that interest rates and/or inflation are headed lower, they know they can profit by buying, regardless of yield.
- Anticipated rate of inflation matters a lot because investors seeking return through yield focus on real interest rates (nominal rate - inflation). Inflation can be negative as well (deflation). If inflation is lower (more negative) than the bond's nominal return, that's a real positive yield. And that positive yield is locked in for the term of the bond, which in the case of the story is 30 years.
- The European Central Bank has repeatedly signaled its belief that zero is no barrier and that negative yields will be tolerated indefinitely. The ECB stands ready for quantitative easing (QE), in which the central bank buys bonds with money it creates from thin air. Investors know this and this compounds the incentive to pile on and buy bonds to enjoy the capital gains (and real returns if the investor believes that deflation is inevitable).
It's likely that all these factors combine to create the current environment. How long all of this can continue is anybody's guess because the situation is without precedent.
It's as if the financial crisis of 2008 was never resolved - just papered over through massive central bank purchases of treasuries and stocks (Japan's central bank owns a major fraction of the value of the Japanese stock market at this point).
[+] [-] jedberg|6 years ago|reply
Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc.
Now instead you have a million dollars in cash. In the current environment, where more people want to put money into the bank than take it out, the cash also has no value to the bank. They can't loan it out again because no one wants to borrow that much. So they charge you for storing your money. This is how they make a profit. By slowly taking your balance, since they can't make money loaning it out.
A negative interest rate basically means more people want to save money than spend money. When the government offers negative rates, it's because they want people to spend money instead of save it. When a bank does it, it's because more people are putting money in than taking it out.
[+] [-] duxup|6 years ago|reply
Paradoxically (well seemingly so) the best time for them to buy or merge with other small community banks was if there was an area they wanted to be in ... that was doing well economically. That was the time to look around at the local banks that they might want to pickup, or those banks actually came to them.
Local small (usually rural / suburban) community banks would find themselves in a bad spot as the locals were doing well financially, paying off loans early, not really borrowing much, and the locals with their extra money started stuffing it into the local bank. Businesses expanded, but they were able to do so with short term or very limited loans.
The local small bank found itself flush with cash, and nobody who wanted it (well not nobody but you get it). That was the time for the other bank to swoop in and save them as they could provide a larger regional reach (and some side businesses that benefited from being backed by all that cash) to areas that still wanted that money for loans.
[+] [-] samsonradu|6 years ago|reply
[+] [-] solatic|6 years ago|reply
Which is why this is a signal that the economy is failing. The underlying behavior which drives the value of currencies is that the currency is being used. If people just stockpile cash then the value of that cash is eroding as people find fewer uses for it.
Since the productive use for debt is as an engine for growth, if there isn't anybody looking to secure debt for growth then we're seeing the long-term effects of a loss of dynamism in the economy, which is detrimental pressure on the underlying economy itself. It's not sufficient to try to persuade people to spend more on consumption (people are always incentivized to consume) - people need to be incentivized to take risks for growth, which they currently are not.
What the central banks will realize is that you can't incentivize people to take risks by holding a financial gun to their heads - that only incentivizes people to seek further safety. You need to, perhaps paradoxically, make it safer to take risks. If the ordinary control for doing so (reducing interest rates) isn't working, then there's a compounding factor which is preventing that safety from being felt.
[+] [-] booleandilemma|6 years ago|reply
But how can I reconcile what you’ve said with articles like this?:
https://www.cnbc.com/2018/03/15/bankrate-65-percent-of-ameri...
[+] [-] Spooky23|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] TheSoftwareGuy|6 years ago|reply
Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy these bonds?
[+] [-] dcolkitt|6 years ago|reply
The collateral needs to take the form of low-risk, liquid securities. Usually government bonds. Bringing a big bag full of cash to a derivatives exchange is not accepted. If you're a big financial institution, you have no choice but to buy government bonds. Even if they're negative yielding.
Since 2008, there's been a massive increase in financial regulations. Policy-makers have desperately pushed to make banks and other financial institutions less risky. That mostly means much higher capital requirements and more central clearing. In turn that means the demand for holding high-quality government has exploded.
[+] [-] tryitnow|6 years ago|reply
The investors buying these bonds are simply betting that these bonds will increase in value (which will supposedly happen if central banks cut interest rates more in the future).
These bonds don't pay out for 30 years and I bet few if any of the institutions buy them intend to hold them that long, they plan to sell when the value of the bonds rise.
So why not just park that money in cash? Well let's say you have $1M and you think bond yields will continue to fall. If bond yields fall further, then the value of these bonds increase, then you can sell them and realize a return.
However, you also want to think about any way that your cash holdings could increase. Could a dollar (or euro, or whatever currency) tomorrow be worth more than a dollar today? Yes, if there's deflation then it could make sense to just hoard cash under your mattress and realize that it's purchasing power is growing!
But these investors are assuming deflation is not too much of a risk - they believe central banks will act to quickly slash interest rates - both increasing the value of these bonds and decreasing the risk of deflation.
Markets are pricing in future interest rate cuts, which is probably not a bad bet to make. Markets a probably predicting interest rate cuts because they think various economies are weakening and central banks will cut rates.
[+] [-] rabidrat|6 years ago|reply
[+] [-] romaaeterna|6 years ago|reply
Once it is in a bank now you have to play the game of trying to figure out the comparative risk between the bank not being around any more 30 years from now, versus the chance that the German government will have forgotten how to operate the money printing presses.
Of course, since this is the EU, I'd actually be rather worried about the latter. Unlike sovereign currency countries, EU countries do not just get to print Euros. A lot can happen in 30 years, especially to a country with 1.5 births per woman like Germany.
[+] [-] whatshisface|6 years ago|reply
[+] [-] qubex|6 years ago|reply
[+] [-] rolltiide|6 years ago|reply
This is the least important thing here.
Bonds have two ways of providing a return. The yield, and the price of the bond itself.
Lower yield means greater price of the bond. They are always inversely correlated.
Even lower yield means even greater price of the bond.
Because of worldwide policies, Its a bond bull market. The greatest bond bull market of all time and there is no exit.
Government creates new bonds at market price. Their independent Central Bank buys those bonds at market price giving newly created money to the government or traders. Market price is always a premium to the prior price. This action devalues the currency, otherwise known as causes inflation, otherwise known as people’s share in the currency stock is diluted.
So nobody needs to care about the yield. Nobody is thinking “well golly I’m going to use a few fractions of a dollar for the next 30 years” theyre thinking bonds to the fckin moon
Buy high sell higher directly to the central bank.
Benign attempts at economic stimulus have turned into a full blown currency war between monetary unions and nation states. The whole point is to get people to think “hm maybe my money isnt doing so well in a bank or in my mattress, maybe I should circulate it in risky investments” , and since people are so willing to pay for the privilege not to do that, the yields will go deeper negative. This prompts other monetary unions to cry foul and consider these actions unfair and uncompetitive, and so they do the same thing to devalue their currency to compete.
Any time you hear someone talk about responding to currency manipulators or reacting to the trade war by lowering rates or devaluing their own currency, just remember:
Bond. Bull. Market.
[+] [-] arcticbull|6 years ago|reply
Here's how you look at it. You give me $20K today, and I promise to give you $19K back in 30 years. The question is two-fold.
(1) What else would you do with that money, that would offer you a better return, factoring all externalities. Holding cash isn't free once you account for risks like getting robbed holding bills your house burns down, you get fake bills, and potentially-negative interest rates at a bank. If you see the market going down you're not going to put it there either.
(2) How much will $20K today dollars buy you as compared to $19K future dollars? If you're betting on deflation, then that $19K future dollars may buy you a house where $20K today dollars may buy you a car.
[+] [-] nostromo|6 years ago|reply
All other developed countries are selling negative or near zero government bonds. This has lead to huge international demand for US 30 year treasuries.
https://tradingeconomics.com/bonds
US treasuries are giving a greater yield than Italy or Spain for reference. Of course there will be huge demand.
Central banks are no longer islands. They are part of the global economy and a part of a market just like any other. The US acting alone to raise interest rates won't work like it did in previous cycles.
[+] [-] thorwasdfasdf|6 years ago|reply
[+] [-] turbinerneiter|6 years ago|reply
[+] [-] gzu|6 years ago|reply
Is it due to portfolio theory where the assumption is stocks and bonds yields have inverse correlation and the way to manage risk is to have a correct ratio? Due to global QE there is too much money floating without enough to invest.
What’s the alternative to equities and/or bonds
[+] [-] docker_up|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] jnordwick|6 years ago|reply
[+] [-] whatok|6 years ago|reply
I'm not sure what bank you are referring to in the first sentence. These are bonds issued by the country.
[+] [-] sunseb|6 years ago|reply
[+] [-] jchrisa|6 years ago|reply
If a government (pretend US if it helps) stopped collecting taxes, and instead funded the budget by printing money every year, who would be the winners and losers compared to the current system? Where can I go to learn more?
[+] [-] yasp|6 years ago|reply
Edit: not sure why I'm being downvoted for this...?
[+] [-] a11yguy|6 years ago|reply
[+] [-] techrich|6 years ago|reply
[deleted]
[+] [-] nihilarian|6 years ago|reply
[deleted]
[+] [-] fourstar|6 years ago|reply
[+] [-] rifung|6 years ago|reply
I follow the traditional advice of doing nothing and not trying to time the market.
[+] [-] my_username_is_|6 years ago|reply
Stay invested in equities. Keep some cash on hand as an emergency fund in case you lose your job, but just don't sell your stocks when the market is down. Stay diversified and stay in the market.
[+] [-] jumbopapa|6 years ago|reply
We've had 10 years of prosperity which should have been ample time to secure an emergency fund to weather the storm.
[+] [-] czbond|6 years ago|reply
Recession indicators have been in play for about 2 years. If nothing else, be much more aware of your high downside risk - and at least scenario model if we go down to multi-decade lows. Specifically in any items with negative EPShare, or not necessities. We're in the cycle now that hits equities -> mid-consumer spending -> business spending -> consumer spending -> real estate. Don't consider the specifics of this message, but the generalities and apply to life
Prepare for years of lower rates of return; If you own property, you will be able to re-fi in a few years to some very low rates. Cash is king for fire sales - lots of people will be going super broke the next 5 years. House prices will de-value enough, so don't buy property for the next 1-3 years. Stock market can revert to 50% of current values.
Edit: used this technique to purchase my first house, firesale. Will do it again this round, along with other lessons learned ;)
Edit 2: Listen to your own companies investor calls (if large enough) - you can predict upcoming layoffs. If you need a new job, do it now before wages stagnate or deflate some. Place yourself in a line of business that is close to a revenue stream of the business, they're rarely cut.
[+] [-] overcast|6 years ago|reply
[+] [-] whatshisface|6 years ago|reply
[+] [-] astura|6 years ago|reply
I have a six figure US stock position and I'm not going to change anything I do as long as I remain employed. Save for retirement/long term in the stock market, save for big ticket items in cash (I have a new car fund, for example). If I lose my job I'll have to stop contributions until I get another job. If I remain unemployed longer term I'd have to tighten my belt on frivolous purchases.
[+] [-] icelancer|6 years ago|reply
Investing every two weeks into my standard allocation that I've decided on, rebalancing when necessary. Anything beyond that is speculation. Especially the concept of an inevitable storm coming. When, how, and where that happens is not something too many people know.
[+] [-] rchaud|6 years ago|reply
Our entire civilization is held up on the promise that financial market indices go up over time, except for temporary recessionary periods. We just accept that retirees cashing out at the wrong time will be victims of 'collateral damage' during these 'market corrections'.
Everything from job growth, to the pension funds that you contribute to, to the municipal bonds governments issue to fund projects, rests on this one core assumption.
[+] [-] bduerst|6 years ago|reply
My take is that this trade war is irrationally based on animosity (even if the sentiment behind it is rational) so my hypothesis is when the tariffs are finally enacted you'll start to see a bigger shift as fund managers figure out that yes, the trade war is here.
[+] [-] WhompingWindows|6 years ago|reply
[+] [-] f00zz|6 years ago|reply
[+] [-] misiti3780|6 years ago|reply
[+] [-] eikenberry|6 years ago|reply
[+] [-] tradeWar|6 years ago|reply
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[+] [-] Ambele|6 years ago|reply
[+] [-] whatok|6 years ago|reply
The reason why bonds are trading at negative rates in the EU are the following:
* The ECB deposit rate is -0.40%. Everything else is benchmarked against that
* The majority of the EU is either currently in a recession or rapidly heading there
* Inflation expectations are weak
[+] [-] unknown|6 years ago|reply
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