What's Your Negative Interest Rate Talk with Your Clients Look Like?

[Justin Bilyj]

NIRP Strikes: Spain To Create Tax On Bank Deposits | Zero Hedge


With many central banks around the world starting to charge for deposits due to a negative interest rate, what have you done to prepare your clients for this scenario?
I am pretty sure most advisors and agents have never even thought of this scenario, but it's happening.

If the central banks cut the interest rate to maintain 300T + from imploding our financial system, then most banks will have to start charging interest on deposits.
What will annuities, bonds, CD's look like at that point? I wonder what IUL caps will look like...

Will a negative interest rate be an economic positive?

Jesse's Café Américain: Alan Blinder: The Fed Should Pay the Banks Negative Interest Rates on Reserves

Making the case for negative interest rates - Fortune

Mining shares: Negative Rates Set Stage for Massive Bull Market | Swing Trading

 

[Justin Bilyj]

http://www.zerohedge.com/news/2015-01-24/get-ready-negative-interest-rates-us

So does this mean I will end up seeing the worst case scenario fees on annuities? What does that mean for the floor rates being offered by fixed annuities?

the U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad, potentially slowing both U.S. growth and inflation; and Treasury Secretary Lew coming out his crypt to mention "unfair FX moves," it appears The Fed (and powers that be) are worrying about King Dollar. This suggests, as Mises Canada's Patrick Barron predicts, the Fed will start charging negative interest rates on bank reserve accounts as the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”. If savers won’t spend their money, the government will take it from them.

 

[scagnt83]

We are far from this IMO. A rising dollar hurts some areas but helps others. Greater overseas buying power means cheaper goods (since we import more than we export).

And Annuity rates are based more on the 10 year Treasury than the prime rate. And the Euro crumbling is causing money to flow into the safe haven of the USA. (in otherwords the influx of money is pushing 10 year yields down which is in turn pushing annuity rates down)


I recently saw a hedge fund bond guru predict something like a 1.5% 10 year yield by July. This guy correctly called back in Aug that yields would drop to the 2% range by January.... and they did by December. He suggested that even if the Fed does raise rates in July it would not push Bond yields back up because of the high demand.
US 10-year yield will hit 1.5 percent: Analyst

 

[Justin Bilyj]

The FED will NEVER raise rates again. With the race to see who is going to go to the bottom of devaluation, this will happen sooner than later. Even Germany bonds are dropping like a stone. And I agree King Dollar is a safe haven like GOLD has been and the Swiss Franc, but our exporters will win the war when we do QE-D later this year cause everyone is debasing the value and Lew HAS to do something about that.

 

[scagnt83]

The FED will NEVER raise rates again. With the race to see who is going to go to the bottom of devaluation, this will happen sooner than later. Even Germany bonds are dropping like a stone. And I agree King Dollar is a safe haven like GOLD has been and the Swiss Franc, but our exporters will win the war when we do QE-D later this year cause everyone is debasing the value and Lew HAS to do something about that.

I cant agree at all. Around half of the Fed officials wanted to raise rates already in 2014.

German Bunds are dropping in yield and gaining in price just like US bonds because it is a safe haven as well.... and judging by yields safer than US bonds... (even though US bonds have had a higher trading volume over the past 6 months)

The US imports around 50% more than we export. Most US manufacturing is sold in the US and not exported. Imports and purchase power is much more important to us than exports.

There is no reason for the Fed to do another round of QE. Foreign buyers are already doing it for them. That is why they could raise rates in July and it probably will not do anything to Treasury Yields.

 

[Justin Bilyj]

Gentleman's bet the FED doesn't raise rates this year, the debt would balloon!

 

[scagnt83]

Gentleman's bet the FED doesn't raise rates this year, the debt would balloon!

I dont disagree that they might not raise rates this year. But rates will rise within the next 2 years.

However, I will bet you a beer that they dont start QE again this year. (since that is different than keeping rates the same)

 

[Justin Bilyj]

Well, if the Fed is about to admit that is not the case, what happens to the strong USD case? It falls apart of course, especially since as we also noted last week, the US commerce secretary said the US is now actively looking at the "strong dollar." It also means that being long the USD - the most consensus trade of 2015 alongside being short USTs (again) - is about to fall apart. However, for that to happen, the big banks need to be able to offload their long-USD exposure on someone, preferably muppets.

Which explains the extensive note Goldman has released this morning, cited above, and titled dramatically enough, "The End Of The Beginning."

This is what Goldman has to say in order to assure that clients flood Goldman's prop pardon flow traders with "Buy USD" orders: orders which Goldman, being on the other side, will be delighted to fill.

http://www.zerohedge.com/news/2015-01-25/did-goldman-just-call-top-strong-dollar-trade

Ok let's get our bet down, I don't think USA will hike rates within 2 years, I will bet you a beer on that one.
As far as QE, it will happen after the dollar blows up again, definitely within 2 years. I will bet you a beer, but after inflation it might be a six-pack.
And I will bet you a beer they NIRP it hard this year...

 

[scagnt83]

Nirp?
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[Justin Bilyj]

Negative Interest Rate Policy

To think that multi-national companies are not complaining to government officials at this very moment is to be fully naïve. I would not doubt, given where the Treasury Secretary is, if he hasn’t been waylaid repeatedly about “doing something” about that “strong dollar.” Unfortunately, he cannot come right out and say that corporatism despises it so the administration, like those before, would prefer it sinking like a rock. Like monetarism, the fiscal side prefers not currency stability but their own, specific brand of instability.

They talk about a “strong dollar” as something that might actually exist, but in this financially-dominated economic reality it doesn’t relate. This is why it is so easy for policymakers to say that while openly courting the opposite – better for IBM, so they believe, not to have to take such negative currency “pressure.” Secretary Lew might continue to talk about it in the same manner as his predecessors, but the dollar is not what it used to be and neither are the implications of its “strength.”