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Friday, January 16, 2015

Negative Swiss Bond Interest - Not a Good Sign

Ol' Backwoods doesn't wear a fancy Italian 3-piece suit, but I do know a little about economics, and I ain't in the Keynesian camp-- as I understand it, von Mises and the Austrian Economists have views that match reality more than the followers of John Maynard Keynes.  So believe me when I tell you this ain't good:
Jan 15 (Reuters) - All Swiss government bill rates and bond yields out to nine- year maturities traded below zero on Thursday, after the Swiss National Bank stunned markets by scrapping its exchange rate cap on the franc and lowered interest rates to -0.75 percent. This was unprecedented in modern times, and analysts said it was only a matter of time before the benchmark 10-year yield dropped below zero too. Swiss rates and yields out to five years had already been trading below zero, but the SNB's bombshell turned the yield on nine-year bonds negative for the first time...
 As my friend Bubba says, "lemme summit furya:" the negative interest rate means bond buyers have to pay the Swiss Government to take their money.  That's not an investment;  it's like paying protection money to the mob.  CNN Money on the Swiss bonds:
That means buyers of those bonds are essentially taking a loss just to hold onto those assets. They think their money is better off losing a few cents [per dollar] than putting it elsewhere.  "It's basically a fee for fear," said Nicholas Colas, chief market strategist at ConvergEx. "Fear of deflation, fear of volatility in other capital markets and general fear of the [un]known."
To a Keynesian economist, deflation is the devil.  Deflation puts power in the hands of the people, not the elites.  In a deflationary cycle the best place to put your cash is under the proverbial mattress, because as prices and values fall, purchasing power increases; your cash will be worth more in goods tomorrow than it is today.

Speaking of that, the Swiss franc plunged as a result of the removal of the "exchange cap".  Last night, there was something of a run on Swiss banks as the Swiss exchanged Swiss francs for Euros, at a profit of up to 39%.

Just a little preview of coming attractions.  Got preps?

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