Posted on 01/21/2015 5:52:23 PM PST by alexmark1917
First Swiss Franc, now Euro... RBC TO CHARGE NEGATIVE INTEREST ON EURO-DENOMINATED BALANCES
— Russian Market (@russian_market) January 21, 2015
Opinion: Think negative interest rates can’t happen here? Think again
In the last week, the markets have had to get used to the idea of the negative interest rate, where you actually get charged for keeping money in the bank rather than going out and spending it. So far, that is restricted to two relatively small economies, both of which are struggling with the likely launch of a massive program of quantitative easing this week in the eurozone.
But what makes anyone think it will stop there?
In major economies such the U.K., and indeed, the U.S., most forecasters are still obsessing with when will the Bank of England finally raise interest rates. Or the Federal Reserve. But here’s a possibility not enough people are reckoning on. The next move might just as well be down — in the U.K., and perhaps the U.S. as well.
In reality, there is no reason why both might not follow the Swiss and the Danes and take interest rates in negative territory. After all, they too might need to defend their currencies from a flood of hot money; they might find it is the only weapon left to combat a recession; and if deflation takes hold, then negative interest rates might not seem so weird. Monetary experiments often start in small countries, then spread to bigger ones. Don’t rule out getting charged for keeping money in the bank at some point in the next few years.
The markets are still coming to terms with the decision by the Swiss central bank last week both to end its currency peg to the euro CHFEUR, +1.28% and to introduce a negative rate of interest. Most of the attention focussed on the turmoil that followed in the market for Swiss francs. In reality, it may be the interest-rate move that is more significant.
http://www.marketwatch.com/story/think-negative-interest-rates-cant-happen-here-think-again-2015-01-21
Poland Rushes to Cut Swiss Franc Risk With Pain-Sharing Plan
Poland wants domestic banks to pass on negative interest rates in Switzerland to borrowers to ease the impact of the surging Swiss franc on $35 billion of mortgages denominated in the currency.
Finance Minister Mateusz Szczurek, central bank Governor Marek Belka and market regulators met with the biggest mortgage lenders on Tuesday after Croatiaproposed fixing the exchange rate on similar loans to help borrowers. Polish measures stop short of Hungarian Prime MinisterViktor Orban’s move last year to order banks to convert $14 billion of foreign-currency loans into forint to cut his country’s exposure to currency swings.
“We made it clear to banks and banks agreed to take into account negative interest rates,” Szczurek told reporters in Warsaw after the four-hour meeting. “The market risk affects both banks and their clients. A client accepts the exchange rate risk while a bank takes the risk of interest rate moves.”
Switzerland’s unexpected decision to end its currency cap last week sent the zloty tumbling 22 percent against the franc, swelling payments for about 575,000 families who borrowed in the currency, and became a hot political issue before this year’s general election in Poland.
http://www.bloomberg.com/news/2015-01-20/poland-seeks-measures-to-help-swiss-franc-mortgage-loan-holders.html
The Danish banks are charging storage fees on Krone deposits, as well.
It is SO easy -- so entirely simple -- for retail savers/investors to make a profit from this nonsense that I shall not relate it here. Simply discard...throw utterly away...what you "know" about finance and think about matters with an open mind for, oh, 10 minutes or so.
Don't condemn these a&&hole bankers for their silly-ass negative "interest" rates, mate. Line your pockets, instead. C'mon, do not play their game. They cannot stop you from playing a game that profits from their idiocy. Sheesh.
OK SAG, please do tell ...
Where I’m from, RBC == Red Blood Cell.
I wish that you’d start a basic trade thread that you could update regularly for the rest of us.
But, you're kidding me, right? I see all this financial commentary here on FR, and fully 95% of it absolute crap. You don't beat the bankers by playing THEIR game (in this case depositing funds in their thoroughly criminal institutions), you beat them by FADING the game that they must play.
Take a simple case: the Euro.
Do you know what EuroBunds are? Or BOBLs? Or Schatzes? No? Well, I'm not surprised. They are, respectively, 10-year, 5-year, and 2-year Euro-denominated bonds. Just like the 10-years and 5-years and 2-years in the US. The Euro bonds are (duh!) denominated in Euros; the 10-years and so forth are denominated in USD. Similarly, the Long Gilt in the UK (10-years). OK, so far?
Now, here's a question for you. If you don't get this one right, forget about trading in the way that I have implied (and will explain), ok?
When a country goes to negative interest rates, and another country does not at the same time, long rates, short rates, doesn't matter, then: HOW SHOULD YOU TRADE their assorted debt-mkt instuments?
I'll make it simpler still: exclude the US from this discussion/question/answer.
I await your answer.
FReegards, and good trading to you!
Y'see, what's happened --esp in financial mkts in the past decade or so -- is that the cognoscenti have made great parts of trading very complex. I cannot claim that I understand the whole game any longer. Therefore, offering ongoing thoughts about trading in the bankers' game is probably doing a disservice to our FReeper colleagues. A shot here and there, more likely.
Here and there, when clear opportunities offer themselves -- as for instance the calendar spread strategy I proposed to our FRiends Pete and Toddy, 3 or so weeks ago -- sure, why not. The only downside--because they're honest chaps AND traders to start--is that I may have to write some amount of explanation why so-and-so strategy works.
In the general case, though, no thanks. I'll suggest specific trades to TRADERS, as I have done. I do not propose to try to educate NON-traders in any strategy or strategies that would/may/might/probably do require writing effectively a textbook on the subject.
BTW, and I am dead serious on this, the paired calendar spread strategy that I wrote out for Pete IS, and has been, a steady winner. And, now we're past holidays and earnings season for NFLX, the next trade in this strategy comes up next Monday.
Qs about it (condition: read the original post to Pete!)? Fine, ask away.
Good trading to you, and FReegards!
The minute interest rates turn negative in the U.S., I’m pulling ALL of my money out of money market funds and cash bank balances and putting it in my safe. Will redeposit only what I plan to spend during each six month period. If all the sheeple did that, then something would have to give.
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