The Era of High Yields is over; welcome to the “Speculate or Starve” Era
However, no two people see the external world in exactly the same way. To every separate person a thing is what he thinks it is –in other words, not a thing, but a think. Penelope Fitzgerald
The masses made no noise when central bankers started to flood the system with hot money and are still quiet, so why will the banks stop? There are trillions of dollars that the big players will make and still stand to make before this game is over. We are in the race to the bottom and once a race starts you cannot stop it. So expect the negative rate experiment to be continued and this will continue until the masses revolt. The story below will be heard more often in the months and years to come. Individuals are being forced to speculate in their quest for sustainable yields.
Cathy Berger, a 55-year-old who lives in Nassau County, N.Y., and works as development director at the Queens Chamber of Commerce, said that in the years before the financial crisis she used to invest a large portion of her savings in certificates of deposit, earning an annual rate of as much as 8%.She moved a portion of her savings into high-dividend stocks after rates fell, but lately, those stocks have been under pressure amid turbulence across the financial markets.
“It’s so volatile,” said Ms. Berger. “Trying to reap any kind of income from your money, from your assets, is almost impossible now.” Full Story
Negative rates are already pushing Managers of Pension funds into a tight corner; soon there will be no way to go. Pension funds typically invest in bonds, but bonds are paying such miserly rates that you cannot call it investing anymore. You have to call it charity. At some point these pension funds will be forced to speculate; to some degree, this is already coming to pass. The article below highlights the conundrum most pension fund managers face
To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research. Full Story
We are just at the beginning stage of this new trend that we have decided to label as “The speculate or starve Phase”. Imagine the amount of money these funds could bring to the markets in the years to come; it will be like 1-2 QE’s combined.
This market is going to trade at levels that seem dangerously insane even to the most ardent of bulls. We said this in 2014, 2015 and we have said this several times in 2016. Pin this somewhere and look at it one day, you will have some great stories to tell your grandkids when you recall this crazy phase many moons from now.
The Goal of central bankers is to force, not coax, the majority of savers to do something they never thought they would ever do; continue reading