Wednesday, February 24, 2016

7 year of Emergency Policy -- how's it looking now?

Headlines last week -- Japan's stores run out of safes!  Turns out that the Japanese have a simple solution to negative interest rates; buy a safe!  Some have tried to paint the removal of the Euro 500 note and the "rumoured" desire by the Feds to kill the US$ 100 as a way of killing cash (which may be true).  But right now people have decided that the banks are doing a terrible job -- are in precarious position, and that interest rates are so low that you may as well keep cash at hand.  If you are not paid for a risk, why take it.

By the way it reminds me a long long time ago (ok late '90s) I had to purchase a plane ticket with cash (like that would be possible now) the airline insisted that I use cash...this was two round the world tickets -- about S$ 6,000 for the two tickets -- so I go to my bank and ask for $6,000 in cash. The cashier tells me that I can have whatever denomination I want.  So like a smart ass that I am I say, can I have a $5,000 and $1,000 note.....  She comes back two minutes later with 6 $1,000 notes -- unfortunately they were out of $5,000 (BTW in those day USD and Singapore dollar were near parity).  They had $10,000 notes but just not any $5,000 notes.  

Back to our story.  From Japan to Switzerland interest rates have been negative for nearly 12 months. For the Swiss the outcome has been strange, local banks offering mortgages should normally have offered zero interest mortgage, but in fact they too changed their methods, once interest went below zero they didn't feel bound by the same price of money connection -- and so mortgage rates in Switzerland have been rising!

The stock market (S&P 500) has been going up and down, but really not doing anything over the past 12 months would have seen only a very small reduction in the value of your portfolio.  Again, timing is the key, for while prices have not moved much the volatility has gone trough the roof.  Look at oil price, in the past 10 days they've gone from $26 to $33 -- that's nearly a 30% price change.  The daily swings have often been of 5-10%.  

So now what.  There's a feeling in the market that ECB is about to pull another -- we will do whatever it takes,move to keep the European experiment working; Greece, Spain and many other are in trouble.  Lets not forget Deutsch Banks;  If DB is on the ropes the European experiment is in real trouble -- as are most of the world's banks.

Enough with my rosy perspective!




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