Negative Rates favor The Speculator & Punish Savers

Negative Rates favor The Speculator & Punish Savers


The speculator

The speculator & Negative Rates

Banks are facing a multitude of problems following the increase in negative interest rates to -0.75 per cent on SNB sight deposits and the further appreciation of the franc. The direct costs incurred by the negative interest rates, amounting to over a billion Swiss Francs, are only one part of the burden.

The new reality of negative interest rates on risk-free investments is also creating uncertainty in the markets, and this can take on a range of different characteristics. Risk-based pricing becomes more challenging. Insurance companies get a relative competitive advantage over the banks in the mortgage lending business, and the prevailing scarcity of investment opportunities for institutional investors is further exacerbated.

Nothing new here, we knew this would happen, and it is coming to pass as expected. Every G7 nation will embrace negative rates and so will the US. The talk about raising rates is nothing but good acting.  The U.S wants to be the last to join the Pack as it will give the illusion that the USD is still the best currency; when in fact, the only appropriate term would be the least rotten out of the pack.  The Crowd loves a story, and they will get a good one.   The end game here is to fuel the best speculation bubble ever and then pop it.

Home prices surgings as low rates favour the Speculator

Home prices are surging because it is cheap to borrow money. The low-interest payments mean that the masses can borrow more money. Hence, individuals throw caution to the wind and start chasing property because they believe prices will continue trending upwards. What they forget is that no market can trend upward forever.

As Interest rates head into the negative zone,  it will have the unintended consequence of fuelling another housing bubble. Suddenly property that appeared to be out of reach could be within reach, only because the monthly payment seems affordable.

Eventually, the U.S is going to lower lending standards and when they do, expect the housing market to explode as there is a lot of pent-up demand. The public has been shut out of the markets for a long time, and when you give someone freedom after locking them up for a lengthy period, they go insane, and that is what lies in store for the housing market.  The Fed has laid the path out, and this was planned years in advance.  Take a look at the Swedish real estate market as depicted in the chart below. The Chart for the US and UK housing markets will look 5 to 10 times worse. What are negative interest rates

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The Speculator & The Saver