Negative interest rates take investors into surreal territory

[RuleNumberOne]

The ECB is distorting the US yield curve. Why don't they try some fiscal stimulus instead of budget surpluses?

 

https://www.wsj.com/articles/theres-no-place-like-u-s-in-hunt-for-yield-11567080003

 

"Several analysts and investors are describing the buying spree by foreign investors as a revival in American exceptionalism—and they say they expect it to continue.

 

“I call this the new abnormal,” said Yoram Lustig, head of multiasset solutions for Europe, the Middle East, Africa and Latin America at T. Rowe Price .

 

The diverging outlooks between the U.S. and the rest of the world have pushed Mr. Lustig of T. Rowe Price and other investors in foreign assets to buy more Treasurys for clients in recent months, while maintaining or adding to their positions in stocks. He said he favors the positive yields of Treasurys over Germany, Japan, Sweden and other countries that contribute to the $16 billion stockpile of negative-yielding bonds.

 

Mr. Lustig said he has been using the strong dollar to boost his returns from Treasurys.

 

“For the first time in my career, I started buying U.S. Treasurys without hedging the dollar,” he said. “Having unhedged U.S. Treasurys in portfolios gives you exposure to two safe-haven investments.”

Traditionally, he said he hedged Treasury purchases to account for currency fluctuations, with the cost usually being the difference in short-term rates between the two countries. But the dollar has defied most analysts’ expectations over the past 18 months. The WSJ Dollar Index, which measures the greenback against a basket of international currencies, is up 2% this year after notching a fresh high Wednesday."

[TwoCitiesCapital]

**Editing because I realized that it was a different thread that I had this conversation in. Including that section from that thread below**

 

 

Negative rates in Europe have inverted the US yield curve.

 

Dan Fuss:

https://www.barrons.com/articles/why-bond-legend-dan-fuss-is-buying-at-t-stock-51563363000

 

"The flows of capital from abroad means the gulf between ultralow or negative yields elsewhere and the high U.S. yields will have to narrow, he continues. "

 

Fed chief Powell said 2 days ago:

 

https://www.cnbc.com/2019/07/16/feds-powell-says-uncertainties-have-increased-chances-of-a-rate-cut.html

 

“We have seen how monetary policy in one country can influence economic and financial conditions in others through financial markets, trade, and confidence channels. Pursuing our domestic mandates in this new world requires that we understand the anticipated effects of these interconnections and incorporate them into our policy decisionmaking,” he said.

 

While I don't disagree with the statement overall, I'd like to see flows information confirm it.

 

It was my understanding that this was, in part, what drove the 10-year to 1.60% back in 2016, but since then I thought it had been a net negative return for most foreign buyers to buy treasuries and hedge the currency risk which has eliminated a lot of the foreign demand over the past 2 years.

 

Is there any flow data supporting foreign buyers?

If the references I looked at are correct, US government debt held by foreign entities has increased ++ after the last recession but has relatively plateaued.

https://fred.stlouisfed.org/series/FDHBFIN

However, the US government has issued debt at a rate much higher than GDP growth and somebody/somewhere has been piling up. In percentage terms, US government debt held by foreign entities over total US government debt (as per the Treasury Department) has risen from about 25% entering the Great Recession peaked at around 34% in 2013-6 and is now on its way down to 29% even if absolute numbers keep going up. Remember also that the Fed has recently been a net seller of government debt. Against all odds, rates have gone down despite the increased supply and demand from US individuals and institutions (including banks) seems to be the driving force.

Here is official data showing what happened recently (over a year-period when public debt increased by 960B).

https://ticdata.treasury.gov/Publish/mfh.txt

From a bird's eye view it seems that the fear and greed spectrum looks more and more like the bimodal distribution that is becoming obvious in other segments which cannot be discussed in investment threads. The US continues to have the cleanest dirty shirt but it's getting dirtier in our beg-thy-neighbor world.

 

I think this supports that we cannot believe that it's foreign buyers. Foreign held treasuries have increased slightly since 2016, but at a far lesser rate than the supply which results in them owning a significant % of the total supply less than their peak in 2016 (as you pointed out).

 

If foreign buyers went from 34% ownership of the Treasury market to 29%, they certainly can't be the cause of the recent drop in rates - someone else had to absorb their 5% reduction along with the increase in new supply.

 

I would tend to believe the BofA CEO because he has the whole of Merrill Lynch at his disposal to find out what's going on (does anyone here know why the Treasuries held by "private investors" has more than doubled from $6 trillion to $14 trillion in the graph from the same website linked below?). But whether or not it is foreign buyers, let us look at the duration risk.

 

https://fredblog.stlouisfed.org/2018/04/whos-buying-treasuries/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

 

home.treasury.gov/news/press-releases/sm679

 

Press release from May 2019. Pietrangeli is the Director of the Office of Debt Management and a member of the Treausry Borrowing Advisory Committee. I'd take what he says, and the data, over what BofA says any day.

 

Pietrangeli next reviewed recent tends in foreign holdings of Treasury securities. He noted that foreign participation in auctions remains in line with historical levels and the amount of foreign holdings had remained steady or had increased gradually since 2014, even as borrowing needs have grown substantially . He concluded that domestic buyers have increasingly absorbed the larger debt issuance since 2014.

 

Once again, it's not foreign buyers driving U.S. rates

 

 

The ECB is distorting the US yield curve. Why don't they try some fiscal stimulus instead of budget surpluses?

 

https://www.wsj.com/articles/theres-no-place-like-u-s-in-hunt-for-yield-11567080003

 

"Several analysts and investors are describing the buying spree by foreign investors as a revival in American exceptionalism—and they say they expect it to continue.

 

“I call this the new abnormal,” said Yoram Lustig, head of multiasset solutions for Europe, the Middle East, Africa and Latin America at T. Rowe Price .

 

The diverging outlooks between the U.S. and the rest of the world have pushed Mr. Lustig of T. Rowe Price and other investors in foreign assets to buy more Treasurys for clients in recent months, while maintaining or adding to their positions in stocks. He said he favors the positive yields of Treasurys over Germany, Japan, Sweden and other countries that contribute to the $16 billion stockpile of negative-yielding bonds.

 

Mr. Lustig said he has been using the strong dollar to boost his returns from Treasurys.

 

“For the first time in my career, I started buying U.S. Treasurys without hedging the dollar,” he said. “Having unhedged U.S. Treasurys in portfolios gives you exposure to two safe-haven investments.”

Traditionally, he said he hedged Treasury purchases to account for currency fluctuations, with the cost usually being the difference in short-term rates between the two countries. But the dollar has defied most analysts’ expectations over the past 18 months. The WSJ Dollar Index, which measures the greenback against a basket of international currencies, is up 2% this year after notching a fresh high Wednesday."

 

It's one perspective by one asset manager that was refuted by the head of open market operations at the Treasury as recently as May. I'll take the guy who sees the big picture of a guy who is a small contribution to that picture any day.

 

I also have some qualms with what he is saying here:

 

1) The USD is does not always behave as a safe haven in recession. It did in 2008, 1980, and 1982 but failed to in 2000, 1990, and 1974 (i.e. the dollar declined in value during the recessionary periods). Also, I'm sure it's a mixed bag in any given year as to which currencies the dollar outperformed/underperformed so a lot of this is also very dependent on which currency you're considering. Thus, to say it's a safe haven to that will hedge a global recession is less than conclusive and I think most managers know.

 

2) The volatility in the USD far exceed the yields on bonds if you're buying them on a un-hedged basis. The USD is up 2% this year. If that reverses, on an unhedged basis you've lost nearly the entire total return for the year for any tenure of bond closer than 10-years. The USD is up 5% from the lows in early 2018 - a reversal there would wipe out 3-5 years of coupon return depending on what tenure you're buying. No self-respecting fixed income manager is going to expose themselves to that kind of volatility and risk losing 5-years worth of returns by not hedging the currency. These are not equity investors that are accustomed to risk - these are investors who choose bonds specifically to manager their aversion to risk.

 

 

[Cigarbutt]

The ECB is distorting the US yield curve. Why don't they try some fiscal stimulus instead of budget surpluses?

 

https://www.wsj.com/articles/theres-no-place-like-u-s-in-hunt-for-yield-11567080003

 

"Several analysts and investors are describing the buying spree by foreign investors as a revival in American exceptionalism—and they say they expect it to continue.

 

“I call this the new abnormal,” said Yoram Lustig, head of multiasset solutions for Europe, the Middle East, Africa and Latin America at T. Rowe Price .

 

The diverging outlooks between the U.S. and the rest of the world have pushed Mr. Lustig of T. Rowe Price and other investors in foreign assets to buy more Treasurys for clients in recent months, while maintaining or adding to their positions in stocks. He said he favors the positive yields of Treasurys over Germany, Japan, Sweden and other countries that contribute to the $16 billion stockpile of negative-yielding bonds.

 

Mr. Lustig said he has been using the strong dollar to boost his returns from Treasurys.

 

“For the first time in my career, I started buying U.S. Treasurys without hedging the dollar,” he said. “Having unhedged U.S. Treasurys in portfolios gives you exposure to two safe-haven investments.”

Traditionally, he said he hedged Treasury purchases to account for currency fluctuations, with the cost usually being the difference in short-term rates between the two countries. But the dollar has defied most analysts’ expectations over the past 18 months. The WSJ Dollar Index, which measures the greenback against a basket of international currencies, is up 2% this year after notching a fresh high Wednesday."

Interesting.

In order to understand better the potential for unintended consequences, one can look at what Japanese banks have been doing as they may be, in some scenarios, some kind of leading indicators unless the decoupling issue persists.

 

The JGBs bond market has been essentially captured by the BOJ and some contend that they have put in place a structure that has neutralized bond vigilantes. Domestic investors cannot (and no longer) rely on the negative yield provided by JGBs and international variable interest seems to be guided by unhedged bets vs currency fluctuations (IMO).

 

So, in these circumstances, if you're a Japanese bank, what do you do? You reach for yield in a very crowded field! Japanese banks (and pension funds it seems) have been progressively moving up the risk curve and I recently read that, with 10-yr US gov. bond yields being where they are, Japanese banks now can expect to receive a net negative yield on US risk-free instruments once hedging costs are taken into account. Japanese banks have piled into global real estate-backed bonds (including Australia), packaged leveraged loans and even equity (domestic and global) and it seems that flying without a parachute (unhedged) may be the way to go forward, at least for some, in this new era. Another interesting feature is that central bank-related authorities have modified accounting rules to allow banks to avoid mark-to-market accounting vs the potential fluctuations of these 'higher-yielding' instruments and allow to report capital gains, when realized, as a separate line item, within the calculations for the net interest margin which has become negative (!) for many banks otherwise.

 

In terms of neutralizing vigilantes and disinhibiting animal spirits, Japan has been the champion of the three-arrow policy (monetary, fiscal and reform) but I wonder if historical parallels should not make possible a reconsideration of the present trajectory. In 1932, as part of a several-arrow strategy, the finance minister Takahashi got the BOJ involved in bond buying to mitigate Depression anesthesia of animal spirits. When unintended consequences kicked in, he tried to restore fiscal discipline but his attempts stopped unexpectedly. After WWII, a tight leash was put around the BOJ in order to prevent it from doing things that could eventually erode the foundations of capital markets.

 

There is potential for competitive currency devaluations going forward. Who's going to win?

https://www.bnnbloomberg.ca/years-of-living-dangerously-japan-s-low-yield-warning-to-world-1.1293571

 

 

[Spekulatius]

Sounds like negative interest rate is a surefire way to destroy the banking system. I guess we will find out if US Banks follow the zombie apocalypse if their Japanese and European peers.

 

The US banking system has less competition, so It won’t be quite as bad , but I could see a world of permanent sub 10% ROE and valuations below tangible book.

[SHDL]

I think you guys are right about how extremely low (or negative) interest rates can create problems by weakening the banking system.  Another issue I think is that they can depress consumer spending by forcing people to save a lager portion of their paychecks so that they have enough savings when they retire.

 

My take on this at the moment is that the ECB and BOJ are doing it wrong and that they should really start trying some version of helicopter money.  (I suspect the ECB may be prohibited from doing so, but anyway.)  Hopefully the Fed will avoid following their footsteps. 

[UK]

http://brontecapital.blogspot.com/2019/08/thinking-aloud-about-bank-margins-part-2.html

 

"But there are outliers - and some of them are surprising. The Irish Banks look in Ireland pretty darn profitable. The Scandinavian banks are alright too - despite (say) Swedish interest rates going negative before everyone else.

 

Even some French regional banks are okay.

 

And these banks are profitable even in a negative interest rate world.

 

Swedish banks faced negative rate early - and they came out kind of well."

[John Hjorth]

Quotation of post by Cigarbutt in the topic Rosenberg is more bearish than usual :

...

...This round just closed was the biggest in history. 80 percent of all mortgages decided refinanced [measured in DKK, not number of mortgages] were decided rolled from negative short term refinancing rates to long term fixed rates [the majority is likely mortgages with 30 years annuity profile], at ~1 percent interest rate, locking in the "advantage"/historical opportunity for the long term. This is only possible because the debtors do not have to buy the underlying bonds related to the existing mortgage in the market, but have the right to redeem at par at any time.

I would submit that the above bolded part is obscene (from a financial point of view) :) ...

Quotation of post by Cigarbutt in the topic What are you selling today? :

 

Sold another portion of the residual TLT (20-30 yr US gov. bond ETF) position.

Moving away from macro trends as this position makes less and less sense from a long term (and fundamental) point of view.

Have kept a smallish position in case the reflexive crowd takes over before the whatever it takes modern fiscal stimulus crowd does.

An interesting aspect is that the pre-defined trigger (price) for the sale of that portion was met before actual economic deterioration made it to the surface, a combination of divergence I never thought possible when this theme was developed in my portfolios years ago.

What is unfolding is absolutely fascinating.

No comments from me here about Cigarbutt's use of the word "obscene" above. [ ; - D] - Congrats! [ : - D ]

 

- - - o 0 o - - -

 

That said, I'm now very close to capitulation towards my fierce resistance here on CoBF of all the talks about negative interest rates for Danish mortgage bonds. [My main point has all the time been that this has to judged based on fixed interest rates over the whole annuity.] We now have available twenty year zero [& fixed] coupon, 20 years annuity mortgage bonds, that can be sold at ~0.96 of par, implying something like ~0.36 percent in effective interest rate.

- - - o 0 o - - -

 

I have never in my life seen anything like this.

[jschembs]

Some months ago, Warren Buffett said on CNBC that if there was a way to short the 30-year US Treasury and buy the S&P, he would do it.

 

It is a good thing there wasn't such a way, or the poor guy would be tearing his hair out right now.

 

Buffett missed out by keeping his stash in T-bills. All he had to do was to ride with the robots.

 

It is not too late to get on the 30-year train with the robots - the ride from 2% to 0% gets you a 70% capital gain. If Buffett doesn't have the nerve, he can get off at 0.25% and still make a capital gain of 50% on his stash. There is trillions to be made by coat-tailing the robots.

 

Euro-Hero Mario Draghi (aka the "hero who saved the Euro single-handedly") backs the robots all the way.

 

Considering what happens on the other side of this is one of the scariest parts of the rate conundrum. WSJ articles will start referencing convexity a lot more frequently.

[Spekulatius]

Some months ago, Warren Buffett said on CNBC that if there was a way to short the 30-year US Treasury and buy the S&P, he would do it.

 

It is a good thing there wasn't such a way, or the poor guy would be tearing his hair out right now.

 

Buffett missed out by keeping his stash in T-bills. All he had to do was to ride with the robots.

 

It is not too late to get on the 30-year train with the robots - the ride from 2% to 0% gets you a 70% capital gain. If Buffett doesn't have the nerve, he can get off at 0.25% and still make a capital gain of 50% on his stash. There is trillions to be made by coat-tailing the robots.

 

Euro-Hero Mario Draghi (aka the "hero who saved the Euro single-handedly") backs the robots all the way.

 

Considering what happens on the other side of this is one of the scariest parts of the rate conundrum. WSJ articles will start referencing convexity a lot more frequently.

 

Yeah, it’s a one way street. Once we are in that zero or negative interest rate hole, we can’t get out of it, without bankrupting virtually the entire financial system.

[John Hjorth]

http://brontecapital.blogspot.com/2019/08/thinking-aloud-about-bank-margins-part-2.html

 

"But there are outliers - and some of them are surprising. The Irish Banks look in Ireland pretty darn profitable. The Scandinavian banks are alright too - despite (say) Swedish interest rates going negative before everyone else.

 

Even some French regional banks are okay.

 

And these banks are profitable even in a negative interest rate world.

 

Swedish banks faced negative rate early - and they came out kind of well."

 

The whole line-out here is ridiculous. Where are the data to support the opinion? Let me just mention, that every Danish bank has a price list [available on its website], indicating what you can expect of price, based on the banks assessment of your credit worthiness/credit score. Where is the analysis & data to support this line of conclusions?

 

Personally, I think a lot people confuse Danish mortgage bonds rates with rates related to being a lending customer at a Danish bank.

[UK]

Just look at what multiples to BV SEB or Swedbank, even after the recent scandal, trades, while both also in negative/zero interest rate environment, and then compare them to german banks. Also negative rates, but very diffeent margins and valuatios. So perhaps interest rate environment alone does not explain such situation. Maybe competetive situation/market structure also matters.

[SHDL]

An interesting take on the US bond rally:

 

https://www.wsj.com/articles/the-market-forces-that-propelled-a-massive-rally-in-long-bonds-11567426486?mod=hp_lead_pos4

 

It seems there was more to this than I thought.

[RuleNumberOne]

Politicians want the housing bubble to inflate until their term ends.

 

https://www.ft.com/content/6d5ee188-e292-11e9-9743-db5a370481bc

 

"European central bankers have expressed their frustration at politicians’ reluctance to introduce tighter regulations in the region’s mortgage market to shield banks and households from the risks linked to rising house prices.

 

Francesco Mazzaferro, head of the secretariat at the ESRB, told the FT: “We wanted people to understand that we are back to pre-crisis peaks in the housing markets of a lot of countries — roughly half of those in Europe.”

 

Klaas Knot, head of the Dutch central bank, said at an ESRB event on Friday that the country’s politicians were reluctant to take action on the “very important vulnerability” in its housing market. He pointed out that the Netherlands had the highest level of household debt in the eurozone, at more than three times income.

 

“The political cycle is simply not synchronised with the economic cycle and politicians will never solve a problem they do not have, so politicians will only start to focus on it when they see the problem . . . and only when it is too late,” said Mr Knot."

 

[John Hjorth]

Det systememiske risikoråd [October 1^st 2019] : Recommendation - Increase of the countercyclical capital buffer rate.

 

["Det systemiske risikoråd" translates from Danish to : "The Systemic Risk Counsel]

 

Definition af "recommendation" in this context :

 

When the Council finds that the countercyclical capital buffer rate should be changed, it publishes a recommendation addressed to the Minister for Industry, Business and Financial Affairs. The Minister is responsible for setting the buffer rate in Denmark. The Minister is required, within a period of three months, to either comply with the recommendation or present a statement explaining why the recommendation has not been complied with.

- - - o 0 o - - -

 

Finans.dk [september 29th 2019] : FSA CEO [Jesper Berg] : Supervisory director Jesper Berg's daughters curse their father far away: "It's financial stability at stake"

 

 

I suppose Jesper Berg's daughters can't get a mortgage because of their fathers - so far successful - interventions in the Danish mortgage underwriting.

[RuleNumberOne]

Over the last 7 quarters, Italy's GDP growth rate has been either -0.1% or +0.1%. Isn't that strange?

 

At the peak of the Eurozone debt crisis, sometime in 2010-2012, Italy's GDP office refused to announce the GDP growth rate to stem the panic. So anything is possible with Italy's GDP office.

 

https://tradingeconomics.com/italy/gdp-growth

[RuleNumberOne]

Permanent capital loss for momentum speculators in less than 6 weeks!!! It will take him/her 33 years to recover the lost amount - assuming the bond prices don't go down further and inflation is zero. LOL.

 

AAA-rated Sovereign debt is not supposed to lose 20% in a month. The buyer got a yield of 0.61%/year. These are the so-called "institutional investors" such as pension funds and insurance companies and banks.

 

The FT has 100% love for Mario Draghi and 100 % hate for Trump/Brexit. FT hasn't said a word about the bond bubble implosion, instead they gave breathless coverage about the Trump impeachment. I terminated my subscription with them.

 

 

Barrons Nov 7 edition:

"By late August, the Austria “century” bond hit a price of 210 as the total amount of negative-yielding global bonds hit a peak of $17 trillion. Austria’s bond at that price provided a yield of 0.61%, at least with a positive sign. That bubble has been deflating, although not bursting, in recent weeks. By Wednesday, the bonds were down to a price of about 168, which results in a yield of just over 1%."

 

Barrons Sep 27 edition:

"In not quite three months, that 1.08% yield to maturity has fallen to 0.72%. The price has reciprocally rallied—no, the word is leapt—to 197.7 from 161, up by 22.9%. You’d think that the bond was a stock."

 

https://www.barrons.com/articles/jim-grant-theres-trouble-ahead-for-austrias-100-year-bonds-51569615760

 

https://www.barrons.com/articles/the-bubble-is-deflating-for-100-year-bonds-51573122603

[John Hjorth]

RuleNumberOne,

 

Please tell us all how to ride this wave, so that we make more money!

[Guest]

rule, how are you positioned? all cash?

[RuleNumberOne]

I am fully invested right now. I think this cycle will be prolonged as long as possible because the wipeout of the European project is what happens at the end of the cycle.

 

My guess is the stock market goes higher and things get crazier.

 

The European banks look dead, their economies seem to be dying, but they blame Trump for everything.

 

rule, how are you positioned? all cash?

[Cigarbutt]

^What Rule#1 is saying basically (if I get it right) is to consider jumping off the plane while leaving many questions unanswered. The easy thing is just to ignore as jumping off the plane is the wrong thing to do most of the times but the inputs perhaps incentivize to ask some relevant questions:

1-How much risk can you afford to take?

2-How much risk do you need to take?

3-How much risk are you willing to take?

4-How much do you care about keeping up with the market?

5-Is there a way to make money here?

 

If the inputs make you go through the first three or four questions then the next logical step is to hope for a complete financial striptease which may be too much to ask.

The above was inspired by a link read this AM:

https://humbledollar.com/2019/12/imagining-worst/

Speaking of humility, one has to wonder about the environment when there seems to be an unusually high number of pilots expressing that flying an airplane is simple AND easy.

-----

Who knows what this all means but this thread went from an environment where fund rates were supposedly and decisively going higher to neutral and, against all odds, to easing although the Fed has difficulty finding the right vocabulary. In reply #101, Spekulatius noted: "Maybe they are too deep in? If rates increase, the value of those low/no/ negative interest rates bonds would drop and the bagholders owning them wouldn’t broke. Maybe all that can be done at this point is dig deeper." While not being relayed really by the press (even the financial press), there continues to be a very unusual confluence of circumstances where the Repo market has participants refusing to enter "risk-free" arbitrage opportunities and where massive support is now simply integrated into a new normal.

https://ig.ft.com/repo-rate/

And the Fed now put in place 42-day facilities to make it through year-end. This is extremely complex but there is something REALLY weird going on and I wonder if there is a link between the tiny rise in interest rate that occurred since last August and the stress seen at the core of the financial plumbing because, as Rule#1 reports, this tiny change likely had a huge impact on the portfolios' mark-to-market value and these are the typical portfolios that foreign financial institutions use as collateral to enter the US Repo market. Obviously this may be some kind of temporary technical noise but it's eerily similar to the noise heard from the wholesale funding market in 2007, when it was felt that the brutal forces of the market would be contained.

-----

Today, I plan to analyze Tech Data in order to do some inversion work. It will likely be a learning experience. However, I doubt that it will be possible, even in retrospect, to find an attractive entry point along the way because there appears to be too much competition as the graph showing competition to outcome is bell-shaped

 

 

[RuleNumberOne]

Negative rates proving to be useless in the real economy, though they have ended up boosting the US stock market.

 

https://www.ft.com/content/a1a14220-1801-11ea-9ee4-11f260415385

 

"Germany’s sprawling industrial sector is suffering its steepest downturn for a decade, underlining how the engine of the eurozone’s biggest economy is sputtering.

 

“Far from bottoming out, Germany’s industrial recession may be getting worse,” said Andrew Kenningham at Capital Economics. “The latest data support our view that a recession is still more likely than not in the coming quarters.”"

 

[RuleNumberOne]

Even the eurozone consumer may be slowing down. Negative rates didn't change anything, why?

 

https://www.ft.com/content/f4e045da-1734-11ea-8d73-6303645ac406

 

" However, there was a worrying sign consumers pulling back in October when eurozone retail sales fell 0.6 per cent in October, a steeper decline than the monthly 0.2 per cent fall in September, according to figures published on Thursday.

 

“The second monthly fall in a row shows that uncertainty regarding the economic outlook may be starting to weigh on consumers’ spending decisions,” said Rosie Colthorpe at Oxford Economics, while forecasting that eurozone retail sales would still rise for the fourth quarter overall."

 

[TwoCitiesCapital]

Even the eurozone consumer may be slowing down. Negative rates didn't change anything, why?

 

https://www.ft.com/content/f4e045da-1734-11ea-8d73-6303645ac406

 

" However, there was a worrying sign consumers pulling back in October when eurozone retail sales fell 0.6 per cent in October, a steeper decline than the monthly 0.2 per cent fall in September, according to figures published on Thursday.

 

“The second monthly fall in a row shows that uncertainty regarding the economic outlook may be starting to weigh on consumers’ spending decisions,” said Rosie Colthorpe at Oxford Economics, while forecasting that eurozone retail sales would still rise for the fourth quarter overall."

 

Pushing on a string.

 

 

[John Hjorth]

What does all that tell the stock pickers here at CoBF, RuleNumberOne?

[wabuffo]

Negative rates didn't change anything, why?

 

Maybe because negative/low rates hurt savers (in terms of lost interest income) than they "help" debtors.  It's a tax basically and destroys the banking sector (which probably also hurts debtors - so no gain).  I remember an analysis that Einhorn did a while back during Bernanke's drive for zero short term rates that used US Household data from the Fed to quantify the negative net impact (savers vs borrowers).  The US was heading in the same direction, but then cut federal taxes which helped to offset the impact to savers by increasing after-tax incomes.

 

wabuffo