The whole world is talking about negative interest rate and that it would simulate the economy by doing so.. It has been happening to Europe recently and japan decades ago. Will it revive the economy ?
It is hard to say but it certainly makes the people that borrowed money in that zone easier for debt repayment and less likely to go down in my view.
It certainly makes the people in that zone harder to retire as the risk free rate are being shifted and that zone of bonds and assets are all being repriced base on that shift.
In my view, when we shift something there will be a repercussion sometime in the future. A shift in the interest rate will only be a shift as to who is paying for the bill for someone.
Fed fund inflation target rates is set to around 2% , in the past 30 years bonds are paying much higher yield than the target rate. As such the have will enjoy a 2-3% premium on top of the expected inflation rate. So someone is footing the bill for someone in this case the have not is footing the bill.
Now a 30 year bond is selling at close to 2% in some countries negative. So is the total opposite of previously. If this trend were to continue, i expect a shift from the so call less risky assets classes into Stocks in the future this is due to future debt obligations from the pension funds around the world.
The pension funds cannot and should not invest in bonds and hope to meet it's obligations.
Stocks selection is critical going forward as we have entered unchartered water. It means that everyone should be trying to learn a new set of economics where by the formula might not be as useful for this new world.
Let's learn...
