upside down

Investing in the Upside Down

"If we’re both going crazy, then we’ll go crazy together, right?" — Mike, Stranger Things

In today's world, it feels like we are all going crazy when you deal with the upside down world of negative interest rates. While negative rates haven't landed in the US yet, the 30-year Treasury rate fell below 2% for the first time ever. It is likely inevitable that we will have to deal with the situation in the not too distant future. So what is life like in the upside down?

UBS charging on cash

In Switzerland, UBS is charging savers interest in their cash accounts. Yes, you are earning negative returns on your cash.

UBS, the world’s largest wealth manager, told its ultra-wealthy clients last week that it would introduce an annual 0.6% charge on cash savings of more than €500,000 (£461,000). The fee, to be introduced in November, rises to 0.75% on savings of more than 2m Swiss francs (£1.7m).

The minimum fee is €3,000 a year. Savings of 2m francs would attract an annual charge of 15,000 francs.

This is pushing savers into a position where they have to put their money to work into risk assets. The issue is that even some junk bonds in Europe now trade at a negative return. This seems insane. Investors aren't being paid for taking high risk!

Danish introduce first negative interest mortgage

This week, a Danish bank introduced the worlds first negative interest mortgage. Free money has arrived to everyone! Wow!

Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

Thanks to ultra loose monetary policy, the investment world is in the upside down with no end in sight. Perhaps they will really start dropping money from helicopters in the future. Nothing would surprise at this point.

There is no doubt that there is a massive fixed income bubble globally with over $16 trillion in negative yielding debt. In turn, this should push equity prices higher because there is no alternative. In the end, the bubble will burst but not just yet.

What would you do if your bank charged you on cash? Are you looking forward to negative interest mortgages?

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About the Author: Chris Wang

Chris Wang

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