It is getting seriously strange out there.A decade ago it would never have crossed even the most mad of monetary minds that the great credit bubble of the early 2000s would end with interest rates actually being negative. Today it's almost entirely normal. Just another tool in a central banker's box.
Negative rates are already par for the course in the eurozone (30% of bonds in issue there will cost you if you hold them to maturity), in Switzerland, and in Sweden, and late last week Bank of Japan Governor Haruhiko Kuroda announced that from now on any bank that wants to keep any new cash on deposit at his institution is going to have to pay 0.1% for the privilege. Japanese rates are now -0.1%.
So who's next? We wouldn't rule out the US its December rate rise is now looking a little bit silly and we most certainly wouldn't rule out the UK. Right now we still expect the next move in rates to be up (wages pressures are building here), but the truth is it wouldn't take much for Governor Mark Carney to decide to push his team the other way and to turn our financial world upside down by making deposit holders pay interest to banks rather than visa versa.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
How might you react? By hanging on to whatever you have that pays any kind of yield. UK dividends might be under threat. But when rates are negative any dividend at all will feel like a blessing! Lynn also recommends physical cash (no interest can be charged on things stored under your mattress yet).
Finally, I would turn to Bill Bonner's wise (and timeless) advice. Quantitative easing and negative rates make it tempting to just buy any old thing just to get rid of cash deposits. But remember, he says, that the long-term key to making money is to buy into cheap markets, not expensive ones and to hold cash when everything is expensive. You clearly don't want to be out of a market if it's in a long bull cycle, he says. But if it is in a long bear cycle there is really no shame whatever the professionals might tell you in waiting for cheap to come around again (even if it costs you the odd 0.1%).
You might have a long wait in the US regardless of who wins the election: the cyclically adjusted price-to-earnings ratio suggests it is as overvalued as it was in 1929 and 2007. But you might make money in India, you might in Japan (still one of our favourites) and you almost certainly will in Vietnam.
It's been an exciting week for us we have relaunched our sister publication, The Fleet Street Letter, with my old friend Charlie Morris as investment director.He'll be guiding subscribers through today's financial and political chaos with plenty of smart commentary and two dedicated investment portfolios. See FleetStreetLetter.co.uk for more.
-
Parental contributions to kids' university living costs could reach £14,000 a yearParents helping kids with university living costs face contributions of up to £14,000 per year, according to a report from HEPI and TechnologyOne.
-
Rightmove: property asking prices hit record highNews Rising demand for top of the ladder home is boosting asking prices, Rightmove research shows. Is now a good time to sell a property?
-
Beat the cost of living crisis – go on holidayEditor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
-
Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Why we need to get a grip on our governmentEditor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
