Monday, March 14, 2016

The Ten Year at Negative 3% Fails Charge?

A comment on a negative interest rate article:

Anyone out there that could give me a better understanding of what this means? Seriously, it sounds important but I'm lost. - Thanks!

Just so.  He is not alone, nobody really knows what is going on, and the action is is wild and confusing as the counter-offensive at St Vith.
And the shortage has even migrated to the short end! “The 3-year note is also trading special at -20 basis points this morning ahead of its auction this afternoon.”
People are happy to lose money immediately?

Recall this is debt, not equity, and credit, not money, so this is deep uncharted territory.

In one of his shortest missives ever, Sean Corrigan notes:
That being the case, why on earth would any sane company boss make sizeable new expenditures whose IRR is deemed to be negative in cash terms – and which will therefore both deplete his equity and sap his means of paying dividends to the firms’ owners – when he can, as is becoming widely bemoaned, make alternative use of the same financial means to boost the price of his shares by swapping some of them for an obligation which he is effectively being rewarded for taking on, so making his hapless bond-holders pay his wages for him instead?
Well, yes, note his scenario - "company boss"... "dividends" ... "bond-holders" ... "swaps" ...  all developments of a capitalist market, and anathema to the self-employed.

There will be history books explaining what happened, but in the meantime, don't end up a statistic in a history book.  Start a business.

By the way, went into a Goodwill Store in an extremely wealthy neighborhood, in which the merchandise was stellar and mixed in with the used was new goods.  The prices were the same as in the poor neighborhoods (I'd rethink that) but my point is goodwill has figured it out: mix the new and the old.

Anyone starting up retail ought to do the same.

Feel free to forward this by email to three of your friends.