Wednesday, May 20, 2020

Negative Interest Rates - Maybe not such a bad idea in the short term

I have been listening to various analysis regarding negative interest rates on the treasury bond offerings. Shooting from the hip here, maybe it's not such a bad thing.  It appears that corporations and institutional investors have always utilized these bonds as safe havens for low risk protection of cash assets. These bonds have also provided a way for companies to offset payroll and overhead costs. So...in the current situation, if these negative rates occur, here is my take. 

Negative interest rates most likely will:

1) push more cash into the stock market with yields much better than 2%! This makes the stock market look very desirable and will keep the markets liquid and flush with cash.

2) Remember those corporate tax cuts? Perhaps this is an indirect way for the gov't can claw back some of those breaks by charging basically additional interest rates for the big players who wish to PARK their money behind the safe haven of the US Gov't.


Thinking FUTURE crazy thoughts:  Will the Fed start charging higher negative rates for foreign investment in the US? This could greatly slow incoming investment cash from all over the world, but seems in sync with this FED's recent sentiments.  

At the end of the day, issuing negative interest rates seems like a bad move because it could inhibit investment in the US, create more restrictions/fewer safe havens, and perhaps spark inflation, the exact opposite of what these negative rates are supposed to stave off. 

Coupled with bank issues, est: 1 trillion in unpaid mortgages last month and overall bankruptcies on the horizon, this is a delicate balancing act that feels a bit like the FED is waiting on the river card to win the hand.




No comments:

Post a Comment