I wrote a couple days ago about how I think US interest rates are inevitably headed to sub-zero levels. Now that it's the weekend I'd like to delve a little bit deeper into the global negative rates conundrum and what that means for your investment portfolio.
Last week, when the Dow Jones Industrial Average straight swooned all the day long to the tune of 800 points down, the Trumpster got a little worried and dialed up all the heads of the Too Big To Fail (TBTF) banks. One thing he hates is a stock market crash. But he might overlook that distaste in his mouth were it to bring him interest rates low enough to compete with the other 4 Special Drawing Rights (SDR) central banks:
- Bank of England
- Bank of Japan
- European Central Bank
- People's Bank of China
Half of those four are already in negative territory. England is pretty close. The 10-year Bulldog is at 0.459% heading into the weekend. But as soon as the radically haired new PM Boris Johnson figures out how to Brexit, the English probably have the best justification of any of the G20 to enact swift monetary policy accommodation.
Here's a look at all the countries (or "Special Administrative Regions" as in the case of Taiwan) with negative-yielding 10-year government bonds or those getting close to it. From investing.com:
That leaves China, which is truly an outlier. Its 10-year bond is almost twice that of its American counterpart, sitting this weekend at 3.03%. If Hong Kong and trade war troubles persist into the fall, they are going to need all of that wiggle room between 0 and 3 to cajole the multiple trillions of dollars in savings the Chinese people have squirreled away. Of course, the government commands nearly a third of the hybrid capitalist economy anyway, which means they have even more wiggle room than it looks like on the surface.
The 10-Year Treasury hit an epochal low of 1.3213% on July 5, 2016. We are now just 24 basis points from that point. It will be a key level to watch in the next few months. Everyone expected rates to begin a slow moderate rise back to "normal" levels from 2018 onward. But this downward trend has persisted since Halloween 2018 and there is absolutely nothing on the horizon that suggests it will reverse any time soon.
So it looks like global interest rates are low and headed lower. How does that affect individual investors?
As always, the key for any individual investor lies in their own heart. Each individual must define their very own unique risk tolerance. If "losing" ten grand in a week due to some market gyrations is going to make you lose sleep at night, well then, "Guess what?" You are a risk-averse investor. If you're okay with your portfolio value swinging back and forth like a rope swing by the lake in the late summer,
Then you are a risk-tolerant investor.
So here's what to do. But remember I am not your financial advisor and you should do your own research.
Some pundits are saying it's a 75% chance that America goes negative (I think it's more like a 30% chance). If you agree that rates are likely headed lower AND you are a risk-tolerant investor, I think you can buy the dip.
Buy what?
Gosh, it's pretty crazy to say this, but honestly, if negative rates are going to be the "new normal" you can buy pretty much anything and it will go up. That's because savers will have nowhere to hide. They will pretty much be forced to put their money somewhere, ANYWHERE, just as long as they don't have to pay to store it there (as they would in a bank that maintains negative rates for their retail depositors).
That means stocks, real estate, gold-silver-bitcoin, startups, anything is pretty much fair game. The only question will be which of these asset classes will go up more than the others.
But here's the crazy thing. The completely totally unprecedented nutso off-the-wall I-can't-believe-it's-like-that thing. If you agree that rates are likely headed lower AND you are a risk-averse investor, you also have to buy the dip. Because you can't stay in cash once rates go negative.
This set of investors is really going to have to bone up on crypto and chase down all the myriad opportunities for yield there is out there right now in CryptoLand.
Crypto.com is offering up to 8% a.p.r. on the crypto you keep in their wallet, which also has a linked credit card, if you stake their MCO coin. It's even available in the US.
Nexo has a similar deal.
Celsius has a bunch of different deals on a variety of cryptocurrencies, including stablecoins.
Compound is an open-source, autonomous protocol that unlocks lending markets for a variety of stablecoins and Ether-based assets.
Gate.io has all of those options and a variety of volatile shitcoins you can lend out as well. If you're lucky, you can get as high as 73% apr for lending those uber high-risk tokens out.
Institutions and other rich guys can do even better than that going to a big boy loan provider like DrawBridge Lending.
And we're just at the beginning of this defi (decentralized finance) movement. It's truly amazing how a lot of the traditional finance world shits on cryptocurrency, but those same institutions are piloting us right into the eye of the storm that will mainstream crypto for the masses like no other.
To conclude, if rates are going down, whether you're a risk lover or a risk hater, the investment prognosis is similar either way:
Buy Bitcoin!
Have a great weekend everyone.
PEACE! ✌🏼