ZIRP Morphs to NIRP

50
Wed, Aug 27, 2014 - 11:29am

Never in my wildest dreams did I envision having a job where I wrote about acronyms like "ZIRP" and "NIRP". But, I guess, never in my wildest dreams did I think that the world would get as utterly screwed up as it is.

First, just to make sure we're all on the same page...

ZIRP: https://en.wikipedia.org/wiki/Zero_interest-rate_policy

ZIRP is the official policy of The US Federal Reserve and it has been since The Great Financial Crisis of 2008...which I might remind you was SIX FREAKING YEARS AGO.

NIRP: https://www.zerohedge.com/news/2014-06-05/nirp-has-arrived-europe-offici...

NIRP is still so new that there's not a even Wikipedia page for it yet. Maybe we should start one? If we don't, someone will. NIRP is Negative Interest Rate Policy and it's here to stay. This is where you pay interest to the bank or some other "lender" like a government for the privilege of having them hold your cash for you.

Why does this matter and why I am bringing this up again today? Because it's just another reason that gold (and silver) are NOT going dramatically lower from here. All of the TA-only fools who count their waves and draw their lines are simply checking their brains at the door and not using common sense. Just as the laws of supply and demand will prohibit another steep drop in price, a world of NIRP will do the same. For when the world is so awash in fiat currency that lenders are actually able to charge interest to their borrowers, that's a pretty telling sign that the devaluation of paper money continues at a breakneck pace. "Investors" may, so far, be slow to return to the safety of precious metal. With NIRP as the new norm, that won't last much longer.

As we've been chronicling since January, U.S. rates have been falling all year...dramatically. Though nearly every "analyst" was projecting higher rates in 2014 due to the alleged "taper" of QE, long-term rates have instead fallen nearly 25%! The 10-year Note, which began the year at 3.0%, has a yield this morning of 2.37% and the 30-year Long Bond, which began 2014 at 4.0%, sits at 3.13%.

But that's just the U.S. Did you know that, in Germany, rates are now negative out to three years and that the 10-year Bund is now yielding just 0.90%? https://www.zerohedge.com/news/2014-08-27/greatest-depression-german-yie...

And to give you some idea of the scale and magnitude of all of this, take a quick look at Portugal. Yes, that Portugal...the one with worst banking system in all of western Europe...the one that just saw its second largest bank get wiped out. Yes, that Portugal...the "P" in "PIIGS, for heaven's sake! Two and a half years ago, the yield on a 10-year Portuguese Note surpassed 15%. One year ago, it was still near 7%. Today? It's now near 3% and falling!

https://www.zerohedge.com/news/portugal-10-year-yield-passes-15-first-ti...

https://www.bloomberg.com/quote/GSPT10YR:IND

What in the name of Jim Grant is going on here?

It's simple, really. After 5+ years of global QE, the world is awash in cash. It's everywhere and permeating everything, from stocks and bonds to luxury real estate. And when you're a hedge fund that is flush with cash and desperately looking for a "safe place" to park it, you'll actually pay the German government interest to hold onto it for you. You might even be outright crazy enough to think that earning 3% from the Portuguese government is a good deal.

And, in this environment, where the cash is going to keep flowing and the fiat devaluation is only going to continue, do you really expect higher U.S. interest rates anytime soon? And, as you know, despite all of the Fed and CNBS jaw-boning, the U.S. can't afford higher rates anyway because of the near-immediate impact on the interest payments of the accumulated $17T+ national debt.

Therefore, the charts below are extraordinarily important as you assess the future trend of precious metals prices. Will prices fall below The Double Bottom of $1180 and head to $900 as some of the chartreaders are saying or will real world practicality take over? I know that these charts aren't perfect and that the scales for each side aren't exact but, nonetheless, you can plainly see the long-term correlation between interest rates and paper gold trading. As rates fall, gold prices rise. Why? Primarily because your classically-trained hedge fund manager recognizes that low and negative rates/real rates are, and have always been, a solid rationale for owning precious metal.

"So, I'm confused. What's the point of all this, Turd?"

Look, if you accept the notion that:

  1. Global interest rates are not headed higher, and
  2. Low/negative interest rates historically cause gold and silver prices to rise

Then you can rightly assume that gold prices ARE NOT headed lower, regardless of what some Wave Counter might think. In fact, should rates continue falling in the very near term, we should expect a sudden reversal in the short-term trend of gold, very likely as soon as market participants and depth return following the end of summer holidays. You can see it in this 2014 chart of the Long Bond vs gold:

And you can see it in this chart of just gold by itself. Price has bottomed again at the intersection of the long-term trendline from May 2013 and the short-term support line for 2014:

So, don't let your heart be troubled by this current decline. As you know, this is all playing out as predicted back in June after price first broke through the long-term trendline. And, for all of calendar 2014, the price action is proceeding along nicely toward the goals we laid out back in January. Again, recognize all of this for what it is and plan/prepare accordingly.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  50 Comments

SilverX3
Aug 27, 2014 - 1:18pm

Sooner or later rates will rise. Fed delaying the inevitable..

Turd, what will it take for rates to "normalize"? Does it need a catalyst such as a black swan event, or if/when we go into global hyperinflation?

kardnul
Aug 27, 2014 - 1:20pm

Excellent post Turd

>>>But that's just the U.S. Did you know that, in Germany, rates are now negative out to three years and that the 10-year Bund is now yielding just 0.90%? https://www.zerohedge.com/news/2014-08-27/greatest-depression-german-yields-now-negative-through-2017<<<

_______________________________________

The charts in that ZH article boggle the mind. NIRP driving money into an already bloated equity market, screams of desperation.....NOT for my tastes.

Gold and silver, the only true money, makes stackin the only viable alternative

SilverX3
Aug 27, 2014 - 1:21pm

Maybe only a global

Maybe only a global realization that the jig is up would cause the bond market to go bidless. Even then, I highly doubt that The Fed, through the PDs, would allow rates to rise/spike.

Aug 27, 2014 - 1:22pm

Palladium still climbing higher

And zeroing in on a new, closing high above $895. I've got a last of $894.20

jaw777
Aug 27, 2014 - 1:23pm

NIRP - In what Universe does this work?

Let me go on the record and say that if anyone wants to pay me to hold your money for you, I have your back. In fact, if it makes you feel better, I'll charge more.

And since we are going down this path, if anyone has a nice house on the beach that you would like to pay me to live in for you, I am your man.

BTW - I sure would like to have you pay me to use your Ferrari and yacht too. Let's get right to it.

WTF?

kardnul
Aug 27, 2014 - 1:24pm

Thanks for the compliment

Perhaps you overlooked that the link you added was already in the post?

Regardless, you are 100% correct in your conclusion.

SS121
Aug 27, 2014 - 1:25pm

Turd, that was good

even i (not too savvy on interest rates, banking and such) see your point with their interest rate dilemma. i think.

with NIRP the system is saying, "don't keep cash in banks". and then with the stock charts (up up up) they're saying "instead put it in the stock market" ??

wow, then if they want to destroy all the public's extra fiats (fiats that might have started moving toward Silver and Gold) all they have to do is drop the stock market and 'poof', it's gone.

in the stock market they're (sheeple) penned up, and can all be fleeced with the drop of a chart.

It would take these sheep several days to get out of the stock market and get to Silver and Gold.

But before, when they were in cash, they were free to roam... and could jump to Silver and Gold with a phone call..

aahhh... so the bankers made the open range pasture grass ZIRP, and now even NIRP! ...all while filling the feed trough in the stock market pen all the way up to DOW 17,000/ S&P500 2000.

And in those six years since 2008 most of the sheeple have all been led back into the pen where the system can now shear them all with the drop of a chart. Not a pretty picture.

jaw777
Aug 27, 2014 - 1:26pm

I hear ya, jaw

If anything shows just how Fd up the QE-era system is, it's NIRP. And, again, with QE continuing NIRP gets worse and vice versa.

SilverX3 TF
Aug 27, 2014 - 1:31pm

Cos of my grim outlook on global economy

I took on a 10-year fixed mortgage rate of 3.99% in Canada in 2013. Perhaps I should've gone with a variable rate or a shorter term fixed. However, that 10 year rate is as low as it's been in a long long time. Historical 10 year fixed are closer to 5-6%. Plus it's never a good thing to guess when this whole Ponzi schemes gonna blow up. I've no choice now; anyhow just digressing.

Pseudozero
Aug 27, 2014 - 1:32pm

absurdity

when you posted the actual numbers for the 10 and 30 year, i nearly spit out my juice...then germany!!! wow. how does that even happen? i'm at a loss for words. great post turd.

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