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Negative interest rate
October 23, 2019
12:32 pm
Brimleychen
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Bill said
True, Brimleychen, but there are lots of ways to make money so if you feel saving is a losing proposition then stop it, be adaptable to the circumstances. For example, interest rates have been low for decades now and that's presented awesome opportunities in other areas, e.g. real estate and stocks are areas that normally thrive in low-interest rate environments, and indeed they have. If I'd been exclusively a saver over those decades my wealth would be a fraction of what it is today plus I'd probably be envious of or bitter at those who did so profit. You point out that banks profit from low yields on gov't debt, so if you think that's the case then the clear lesson is to participate in those profits via bank shares ownership. If, as you say, savers are paying the price, are being "robbed", then clearly stop being a saver, at least with some of your money, and do what those who you feel are profiting are doing.  

Vatox said
Brimleychen, that only applies to those that NEED to have big gains. I say people need to contribute higher amounts to savings and stop trying to get free money from thin air. We work hard and if you live a bit lighter with larger savings contributions, your retirement will be blissful.  

Bill said
True, Brimleychen, but there are lots of ways to make money so if you feel saving is a losing proposition then stop it, be adaptable to the circumstances. For example, interest rates have been low for decades now and that's presented awesome opportunities in other areas, e.g. real estate and stocks are areas that normally thrive in low-interest rate environments, and indeed they have. If I'd been exclusively a saver over those decades my wealth would be a fraction of what it is today plus I'd probably be envious of or bitter at those who did so profit. You point out that banks profit from low yields on gov't debt, so if you think that's the case then the clear lesson is to participate in those profits via bank shares ownership. If, as you say, savers are paying the price, are being "robbed", then clearly stop being a saver, at least with some of your money, and do what those who you feel are profiting are doing.  

You are ABSOLUTELY right by using the SOUND investment logic. I chimed in just to mute the excitement of negative interests for borrowing. True, why should we not go for the free money, if it really come to Canada?

Having thru Black Monday, DotCom Bubble, Great Recession (Sub-prime), and I know QE will end badly, and eventually only crony insiders wins.

Back to the topic, as a saver, we can only complain here for this depressing interest ratesf-embarassed

October 23, 2019
12:42 pm
Brimleychen
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Bud said
Exactly! Take Vatox advice and you will live comfortably or at least comfortably enough. You can still enjoy the things you really want.  

Thumb up! We all survive heresf-cool although we cannot leave a big estate for my grandchildren.

October 23, 2019
1:51 pm
Bud
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leavin estate for grandkids one of the tactics used by the industry to lure investors into higher risk product. another cdn bank stocks "fees gettin to ya, if u cant beat em join em".

Bill ur a fan of mutual funds? What asset allocation do you recommend for the average portfolio? house condo rental funds stocks other

GIC King

October 23, 2019
5:28 pm
Bill
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Bud, in post 20 you indicate you pretty much know what I do/did financially (at least if I understand your wording/spelling/grammar). And in post 18 you indicated your objective is not to get rich anyway, saving is the way to contentment. So I'll just leave it at that, I'm confident you're quite capable of figuring out for yourself how best to meet your objectives.

October 24, 2019
5:38 am
savemoresaveoften
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Brimleychen said
I don’t think it is cool for any savers here, with this type depressed interest rates.
...
Due to the flood of new money the yields on government debt have been depressed, giving holders of this debt, principally the banks, a nice fat capital profit.
....
Central banks pretend all these benefits come at no cost to anyone.
...
Unfortunately, there is no such thing as a perpetual motion of money creation, and someone ultimately pays the price. But who pays for it all? Why, it is the wage-earner and saver and anyone else with deposits at the bank. They are also robbed of the compounding interest their pension funds would otherwise receive.  

Bonds yields are a pure function of supply vs demand, and the expectation of inflation in the future. When yields fall, all borrowers benefit to some extent, house buyers who need a mortgage, etc etc. Even those that has a unsecured line of credit benefits too as bank rate drops.

Banks make their fat profit when the yield curve is positive and steep, not from bond yields lower. If you notice, mortgage rates goes down as bond yield goes down. The spread is pretty consistent.

In a low rate environment which is now 10 years since the financial crisis, it redefines the vehicle(s) one should use for savings. Money in the bank is now a very inefficient vehicle, compare to blue chip dividend paying stocks, income producing real estate etc.

November 5, 2019
12:47 pm
Brimleychen
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savemoresaveoften said

Bonds yields are a pure function of supply vs demand, and the expectation of inflation in the future. When yields fall, all borrowers benefit to some extent, house buyers who need a mortgage, etc etc. Even those that has a unsecured line of credit benefits too as bank rate drops.

Banks make their fat profit when the yield curve is positive and steep, not from bond yields lower. If you notice, mortgage rates goes down as bond yield goes down. The spread is pretty consistent.

In a low rate environment which is now 10 years since the financial crisis, it redefines the vehicle(s) one should use for savings. Money in the bank is now a very inefficient vehicle, compare to blue chip dividend paying stocks, income producing real estate etc.  

Yup. They seem to be logical investment choices. But be aware of the disclaimer of the so-called investment, especially for the readers in this forum for high interest savings.

If you were in TSX, there was another company (Pengrowth) went belly up last week, which was one of Bay Street's darlings for dividend playing for a long time until 2015. For mid 30 high to 0.05cent now.

There is an interview to Goldman CEO today about negative interest experiment. https://www.bloomberg.com/news/articles/2019-11-05/goldman-s-solomon-joins-critics-of-europe-s-negative-rate-policy

December 9, 2019
4:11 am
Loonie
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Interesting article on responses to the negative interest situation in Germany, especially as it impacts savers:
https://www.theguardian.com/business/2019/nov/22/germanys-risk-averse-savers-grapple-with-negative-interest-rates

December 9, 2019
9:39 am
Vatox
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Loonie said
Interesting article on responses to the negative interest situation in Germany, especially as it impacts savers:
https://www.theguardian.com/business/2019/nov/22/germanys-risk-averse-savers-grapple-with-negative-interest-rates  

Lol, love the piggybank with bandages! It’s quite obvious that the problem stems from economic policy and governments desires to keep pumps flowing on consumerism. Negative interest rates shouldn’t exist anywhere.
However, there is a way around it. If you are confident in the real estate market and property values, you can simply take out a mortgage and let the bank pay you and counteract the loss on savings.
I’m quite sure policy will change, when people make a run on FIs to get their money out. You can’t have people storing their money under mattresses or in home vaults, as crime would go through the roof.

December 9, 2019
11:17 am
Bill
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Vatox, the article didn't say anything about being paid interest to take out a mortgage, you really think they would pay you interest on loans/mortgages?

The article refers to bank accounts. I wonder if there are negative interest rates anywhere on GICs or their equivalent fixed income instruments. I think I've heard of some bonds with negative rates.

Can't keep cash in a safety deposit box without violating the t&c, so I guess you could withdraw it and keep it at home or bury it somewhere.

December 9, 2019
12:32 pm
Vatox
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Bill said
Vatox, the article didn't say anything about being paid interest to take out a mortgage, you really think they would pay you interest on loans/mortgages? 

If interest rates go far enough below zero, then yes. This is just one FI and remember, an FI doesn’t have to charge negative interest on savings just because the central bank has a negative overnight rate. I suspect that here in Canada, we won’t see negative interest on savings unless the overnight rate goes severely negative and then I would expect loans to also be negative.
The FI in the article is most likely just profit greedy and charging on savings to make up for diminishing revenues.
It’s an interesting thought! Punn intended. Paying someone to borrow doesn’t sound plausible because we haven’t experienced this before, yet charging for savings has started.

December 9, 2019
12:44 pm
Vatox
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December 9, 2019
4:54 pm
Loonie
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Bill said

The article refers to bank accounts. I wonder if there are negative interest rates anywhere on GICs or their equivalent fixed income instruments. I think I've heard of some bonds with negative rates.

I'm sure there is a lot more info out there somewhere, but I did read that Germany issued 30 yr bonds with 0 interest last August. I suppose it's an alternative to the mattress or safety box for some people in some circumstances.

And let's not forget, folks, that inflation is climbing. In my view, it's going to increase significantly over the next 10 years. Just to add to the fun.

December 9, 2019
5:14 pm
Vatox
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Loonie said

Bill said

The article refers to bank accounts. I wonder if there are negative interest rates anywhere on GICs or their equivalent fixed income instruments. I think I've heard of some bonds with negative rates.

I'm sure there is a lot more info out there somewhere, but I did read that Germany issued 30 yr bonds with 0 interest last August. I suppose it's an alternative to the mattress or safety box for some people in some circumstances.

And let's not forget, folks, that inflation is climbing. In my view, it's going to increase significantly over the next 10 years. Just to add to the fun.  

The German Bund is negative. You must pay the government to borrow your money.

https://www.marketwatch.com/investing/bond/tmbmkde-10y?countrycode=bx

December 9, 2019
5:30 pm
Vatox
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December 9, 2019
11:34 pm
Vatox
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This is a great quote from an article I just read. It’s about negative interest rates.

“ Paying any government to take your money is as irresponsible as feeding children nothing but candy bars.”

Dropping interest rates, under current circumstances, is the same moral hazard.

December 10, 2019
6:21 am
Bill
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In any event, as if persistent low rates weren't already, negative interest rates are a sign of a very sick fiscal environment. Perhaps an argument for holding some wealth in gold or real estate instead of excessive amounts of financial instruments/currency. Hyper-inflation, which occurs when "money printing" measures increase quickly, can wipe out the latter.

December 10, 2019
9:07 am
Vatox
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Bill said
In any event, as if persistent low rates weren't already, negative interest rates are a sign of a very sick fiscal environment. Perhaps an argument for holding some wealth in gold or real estate instead of excessive amounts of financial instruments/currency. Hyper-inflation, which occurs when "money printing" measures increase quickly, can wipe out the latter.  

I would say deflation might be a problem if debt isn’t reduced.

December 10, 2019
12:02 pm
butterflycharm
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Greg Franklin said
Norman1, their bond rates, yields are negative already from 1 week to 6 years, http://www.investing.com/rates.....ment-bonds.

Even after that their rates are so low that it puts to shame Japanese bond rates, yields which some are negative today, 1year -0.013, 2 year -0.005%, 3 year -0.007%.

Switzerland 5 year -0.085%, 10 year 0.318%, 15 year 0.469%, 20 year 0.661%, 30 year 0.808%.

I can't see them giving really much if any interest to people with their savings account, fixed rate deposits at banks and other financial institutions in Switzerland.sf-frown  

Sometimes they pay back with their currency gains (i.e. 1970 4.336657 CHF = 1 USD and today 0.98 CHF = 1 USD). They pay back with "safe heaven" quantity. It's a broad topic as to why they are a safe heaven but "safe heaven" is a type of interest paid back in itself. And if someone is laundering money probably they were (and maybe still are) the best rate in the world so they are still great for some people.

December 10, 2019
12:46 pm
Bill
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When the debt wall is hit, no more debt available, gov'ts will not just say "oh well, it's over, we have a depression now", what they will do is just print the needed money (based on their past behaviour) to forestall as long as possible, thus I see no deflation risk.

I believe what's meant is "safe haven".

December 10, 2019
12:56 pm
Vatox
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Printing excess money is career suicide because inflation will take off and those responsible will have to answer to the masses.

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