From the monthly archives: May 2016
We are pleased to present below all posts archived in 'May 2016'. If you still can't find what you are looking for, try using the search box.
The recession scare at the beginning of the year was an unpleasant reminder of how empty the central banks' armoury has become. Even if the Fed manages to push interest rates to a meaningful level, say 2%, this leaves only modest conventional monetary policy firepower to address any future slow down. 2% interest rates seem a long way away in the States and an eternity away in Europe and Japan. With bond yields where they are, further rounds of QE are likely to be impotent, this is the archetypal 'pushing on a string' situation.
The Bank of Japan surprised markets in January by joining the ECB and the Swiss National Bank in imposing negative rates on excess reserves. Financial markets have been unimpressed by these moves, and banking share prices have suffered as markets have digested the implications for net interest rate margins. Quite how far rates can fall into negative territory remains uncertain, but if they keep falling at some stage it will become cost effective to hold cash in hand rather than on deposit. As a home owner, I rather like the idea of receiving a monthly interest payment from my mortgage bank. Mind you, if interest rates ever fell that low, there would be no hurry to cash the cheque.
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Arguably bond investors are more logical and technical in their approach than many equity investors. This reflects the mathematical disciplines required to analyse fixed income markets whereas the greater uncertainties prevalent in the equity space is in keeping with a slightly more artistic bent. This is reflected in the key valuation metrics used by the respective camps.
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