Effect of Negative Interest Rates on Stock Prices and Bond Yields

[pureantigravity]

The bond market and the stock market - not any other markets.
I think this is going to be a reality very soon.

People have kept Covid-19 aid money in cash balances. On the business side, corporate cash balances are at all time highs.
So the government has to do something to get people to spend, right?
Or what?

People haven't stopped buying bonds, even with the meager bond yields in contrast to the amazing returns the last few years on the stock markets.
And without a doubt many big name stocks are all 'present future value' to the extreme (Tesla for one obscene example).

So what gives?
Who gets?
Where is this going, when, and how it will affect stock prices (incl. dividends) and bond yields?

Your thoughts please.

[Dexter Rutecki]

There will not be negative interest rates (in the U.S.), so I am not sure that there is anything to discuss on this.

[Benny Profane]

There will not be negative interest rates (in the U.S.), so I am not sure that there is anything to discuss on this.

Yup.

Greatest danger is interest rates climbing, hitting bond values by 20-30 % in the process. The nearly 40 year bond bull market is over.

[Dexter Rutecki]

Well, I'm not going to go completely on the other side of this either, but yeah, at some points higher rates would seem to be more realistic than negative rates (which, again, is not going to happen). But I've gotten a little tired of hearing the inflation prognosticators make their ridiculous predictions for the past 10+ years (and be completely wrong every single time).

[Harry]

Your thoughts please.

Investment advice from a TGR Troll who does not understand how steel cables work = Lulz.



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[splat]

Does that mean banks will pay me monthly dividends to borrow money from them???? Sweet.

Are you fucking high, dude?

Really, we're not all sitting on edge waiting for you to render your next opinion, in case you thought we were.

[Bunion 2020]

Actually, some of us are. I need another good face palm.

[Ted Striker]

Are you fucking high, dude?

PG's signature should be but I'm fucking high, dude.

[54-46]

The bond market and the stock market - not any other markets.
I think this is going to be a reality very soon.

People have kept Covid-19 aid money in cash balances. On the business side, corporate cash balances are at all time highs.
So the government has to do something to get people to spend, right?
Or what?

People haven't stopped buying bonds, even with the meager bond yields in contrast to the amazing returns the last few years on the stock markets.
And without a doubt many big name stocks are all 'present future value' to the extreme (Tesla for one obscene example).

So what gives?
Who gets?
Where is this going, when, and how it will affect stock prices (incl. dividends) and bond yields?

Your thoughts please.

[Vt-Freeheel]

I could have been a bond analyst, but I got high
I could have been a metallurgist, but I got high
I could have not bought some carbon rotors, but I got high
But I got high, but I got high, but I got high

[Ted Striker]

The statue got me high

[Self Jupiter]

[Talisman]

Investment advice from a TGR Troll who does not understand how steel cables work = Lulz.

I am not a metallurgist but know how steel cables work (if they are similar to wire rope) and how to make money in the stock market. Buy low, sell high but never buy or sell when you are high. My commission is reasonable, you are welcome.

[pureantigravity]

Calm your nozzles folks.
This isn't a test.
There are already countries with central bank negative interest rates.
And lots that are bordering on negative.

Denmark -0.75
Switzerland -0.75
Japan -0.10
Bulgaria 0.00
European Union Eurozone 0.00
Norway 0.00
Sweden 0.00

Australia 0.10
Israel 0.10
Poland 0.10
United Kingdom 0.10
Samoa 0.19
Canada 0.25
Czech Republic 0.25
New Zealand 0.25
Peru 0.25
United States 0.25
Fiji 0.50
Jamaica 0.50
South Korea 0.50
Hungary 0.90

[Dexter Rutecki]

Yes, thanks--almost phrased my initial response as 'we will not be like Denmark or Japan' (forgot about SUI), so initial response still stands--no negative rates in the U.S. Just not going to happen. The Fed has been pretty clear on this, and there is zero sign that this will change at any point in the foreseeable (and probably non-foreseeable) future.

Here, this doesn't go too much into some of the 'why' aspects, but it's a pretty clear, succinct write up (IMO):

May 15, 2020, 4:04 PM EDT
By Ben Popken

Imagine a backward world of “negative interest rates'' where banks charge you to save your money and pay you to take loans. Now forget it, because that’s never going to happen, even though that seems like the back-of-the-envelope implication of the unconventional monetary policy called for by President Donald Trump in tweets and rejected by Jerome Powell, head of the Federal Reserve, which sets U.S. monetary policy.

One of the main levers the Federal Reserve uses to influence the economy is by setting the federal funds rate, the interest rate banks charge each other to borrow. This one rate is in turn used as a benchmark for banks on a wide variety of products from the credit cards in consumers’ wallets to the loan for the car they drive and the interest earned by the nest eggs in their accounts.

Loans are more expensive for a borrower when rates are high, and cost less over time when rates are low. The only thing less than zero is a negative.
Fed chairman warns economy may need more aid
May 14, 202001:57

That’s got some people excited that negative rates could be the secret to juicing an American economy reeling from coronavirus shutdowns, skyrocketing unemployment, and plunges in spending and risk-taking.

“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the 'GIFT.' Big numbers!” Trump tweeted on Tuesday.

Despite the pressure, Powell maintained his course of action, saying Wednesday that negative rates are "not something we're looking at," during a webcast with the Peterson Institute for International Economics.

Social media has reacted to the prospect of ever lower rates with jokes about “negative interest rate credit cards” that earn you money the more you shop.

“Will the interest rate on my credit card and student debt go negative too? Will I receive interest payments for borrowing money!!!? Is this a dream!?” tweeted Twitter user PubliusValerio.

“Stimulus for the people, everyone gets a 10K limit 25% negative interest rate credit card,” tweeted Twitter user Ken Wood.

Previously seen as a sort of theoretical thought experiment and a line that should never be crossed, the central bankers of some countries, notably slow-growing economies such as Japan and Switzerland, have experimented with setting negative interest rates.

“Negative interest rates are intended as a disincentive for people to hold cash instead of using money to purchase goods and spend money,” said William Isaac, a former Federal Deposit Insurance Corporation chairman, and co-chairman at the Isaac-Milstein Group. “The central banks of the world have gotten into a very bad place, beginning with highly unorthodox monetary policies during the crisis of 2008-2010. They don’t have many tools left to stimulate economic activity.”

These tools were effective in avoiding deflation, according to a paper by the Committee on the Global Financial System, though they did squeeze bank profits.
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But “there is little if any evidence that negative rates actually stimulate growth, inflation, or improve bank lending,” said David Lebovitz, a global market strategist at JPMorgan Asset Management.

Long-term effects of negative interest rates can’t be fully determined either, the paper also warned.

It can be determined that setting rates to negative wouldn’t upend the cornerstone of banking where banks charge you interest on loans and pay you interest on deposits.

“Negative interest rates won’t filter down to the consumer level,” said Greg McBride, chief financial analyst for Bankrate.com. “No one is going to pay you to take out a loan, and banks will not charge money to put in a savings account.”

No one is going to pay you to take out a loan, and banks will not charge money to put in a savings account.

Banks could make up for the loss in lending income by increasing fees on checking accounts, overdrafts, ATM withdrawals, wealth management and mortgages.

“If we did see negative rates here, they would probably not impact the average consumer right off the bat,” Lebovitz said. “The experience in Europe suggests that only bank clients of a certain size would be subject to negative rates; everyone else would simply earn zero.”

For now, the Fed continues to push back against suggestions of a negative interest rate, and Powell said he believes it has plenty of tools left in its toolbox to help guide the economy.

Even if the rate is not negative, it does appear that a low interest rate environment is here to stay. Consumers with savings can try to stay competitive with inflation by putting their money in a high-yield online savings account.

But they should avoid money market funds, which “become an even worse alternative than they are now the lower rates go,” McBride said. "The yields are currently racing toward zero — and what happens to those funds in a negative rate environment is the trillion dollar question.”
Ben Popken

Ben Popken is a senior business reporter for NBC News.

[irul&ublo]

Tech Talk Bitch!!!!

[Ted Striker]

PubliusValerio!

[stalefish3169]

Bitcoin fixes this.

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[Benny Profane]

Bitcoin fixes this.

Sent from my Pixel 4 XL using Tapatalk

Maybe. Not.

https://awealthofcommonsense.com/202...o-for-bitcoin/

[Dexter Rutecki]

Bitcoin=tulips. Still. (I know this bubble has lasted longer, but these things always come to an end.)

[stalefish3169]

You're right. Things don't last forever.



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[Benny Profane]

What color will China be?

[Viva]

Does my apathy regarding this thread fall under the purview of "Negative Interest"?

[m2711c]

Red... of course.

[stalefish3169]

Maybe. Not.

https://awealthofcommonsense.com/202...o-for-bitcoin/

If the author of that article who still doesn't get Bitcoin bought BTC and ETH in late summer 2017 and held until now he'd be up approximately 400-500% today. That sure beats the hell out of any bullshit "high-yield" savings account or bonds where he could be up maybe 3%. And his best-case scenario of BTC becoming digital gold sounds pretty good and entirely plausible. Especially considering the absurd currency debasement happening in almost every major country and the insane multi-billion dollar valuations of companies that don't make any money.

But I'll leave this thread and allow you dudes to debate in peace. Mostly just came here to say what up to puregravity and remind everyone that he said Bitcoin was going to zero many times in the Bitcoin thread. However, you'd never know it because he deleted almost all of his posts.

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