Posted on 08/03/2016 10:11:31 AM PDT by Lorianne
The most recent batch of economic stats was even more disappointing than usual, resulting in a cliff dive for the Atlanta Fed’s GDPNow US growth report:
It’s the same around the world, with European, Japanese and Chinese numbers coming in below (already lowered) expectations. The implication? Interest rates in major countries will either remain extremely low or fall further from here. With $11 trillion of government bonds already trading with negative yields, that’s an historically unprecedented prospect.
But for financial companies like insurers, pension funds, and money market funds, today’s world is not just unprecedented, it’s existentially threatening. Consider, for instance, the plight of Australian insurance companies:
(excerpt) Obviously, Australia isn’t a major factor in global financial markets. But the fact that it has higher interest rates than many other countries and its insurance industry still saw a 47% decline in return on investments last year implies that things are even worse for insurers in Japan and Germany, where yields on virtually all government debt are negative.
Such companies will have no choice but to roll the dice on “growth” assets like junk bonds and equities, which fundamentally changes the nature of their business model. Instead of steady, predictable income that guarantees the ability to pay off on policies when required, they’ll have flush years and lean years, which might or might not coincide with the needs of their clients. They’ll become hedge funds, in other words, high-risk investment vehicles that do well in good times and frequently fold up shop in bad.
With governments – which have borrowed tens of trillions of dollars that have to be rolled over every few years at prevailing interest rates, and corporations – which have borrowed trillions to buy back their own stock – already having devolved into high-rolling speculators, it’s not a surprise that the once rock-solid insurance industry would do the same. Still, it leaves regular people looking for safety with one less place to hide out.
And of course it means the inevitable bailouts, when they come, will dwarf anything seen before.
This is what Trump ought to be talking about instead of making a damn fool of himself over that nobody Khan.
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