Swiss Game-Changer, Welcome to the New New Normal

 

Question: Why in the world would anyone buy negative yielding bond, the Swiss bond for example,  yielding MINUS-1% over 5 years?

 

The great central banking experiment just went surreal this week; the Swiss have done a game changer by taking interest rates so negative that it is actually going to be passed on to depositors to take the hit just to park money. No one of significance has dared to do that in the past because if people see their deposits dwindle there could be a run on the banking system. If the Swiss can dare to take rates negative, then anybody can take deposits negative, because few (if any) are more dependent on banking than they are. So that means that the door is open for Haruhiko Kuroda (Governor of the Bank of Japan) and Mario Draghi (President of the ECB) to take rates negative. And investors put up with it because they are afraid of deflation; if you feel like prices are dropping and even though interest rates are negative – the interest rates are less negative than prices falling (or at least the potential of prices falling). Yes, your money is not in a safe place to retain 100% face value with negative rates, but it is in a controlled place that has less loss of value (assuming deflation is occurring). But the most powerful thing here is that they can always take rates more negative to get ahead of deflation – this is a game changer in terms of fighting deflation. Not so good for bonds, but it is bullish for stocks as equities are one of the only places investors can find some sort of yield – but then again… at what price? --- Valuations get distorted, stocks are valued less on earnings, but more on a forced trade type scenario passed on a greater fool theory (that there will be a greater fool to take the stock off your hands at a later date). – Wow, welcome to the new new normal. The only thing with the Swiss though is that they can afford to do it for the fact their currency is strong (for now) and is apt to appreciate relative to others -- something the Yen and Euro can't say -- but that won't stop the ECB and/or Japan from finding out the hard way and attempting to mimic the Swiss central bank's move. ##

 

S&P 500 Comments: S&P 500 Index sits at 2051.82 (as of Friday Jan. 23, 2015),

S&P 500 Large Cap Index - 3 year chart with Moving Averages, & Chaikin Money Flow:

Click here for source chart URL

 

To see an interactive heat map of the individual companies making up the S&P 500 (by price performance) click here

 

Oil Comments: WTIC sits at US$45.29/barrel (as of Friday Jan. 23, 2015),

West Texas Intermediate Light Crude - 3 year chart:

Click here for source chart URL

 

Natural Gas Comments: The price for natural gas is US$2.97/Thousand cubic feet (as of Jan. 23),

Natural Gas - 3 year chart (click here for source chart URL):

  

Gold Comments: Price of Gold is US$1,294.10/oz (as of Friday Jan. 23, 2015),

Gold - 3 year chart (click here for source chart URL):

 

Silver Comments: Price of Silver is US$18.33/oz, to see 3 year chart of silver click here

    

Bonds Comments: The yield on10 Year US Treasury notes sits at 1.81%,

10 Year US Treasury Yield - 1 year chart (click here for source chart URL):

  

Currencies as of January 23, 2015:

 

AUD/USD : [chart] 1 AUD = 0.7913 USD

    

USD/CAD : [chart] 1 USD = 1.2422 CAD
  

EUR/USD : [chart] 1 EUR = 1.1206 USD
.

USD/JPY : [chart] 1 USD = 117.6650 JPY

 

 The Silent Quotient

  Sector Rotation Journal ##

 

Articles, excerpts, commentary and reviews herein are for information purposes and are not solicitations to buy or sell any of the securities mentioned. Readers are cautioned that every idea communicated herein involves risk and uncertainties. Opinions and predictions and may differ materially from actual events or results.

 

 

 

 
             
 
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