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Solution to Negative Interest Rate Policy? Trend Following

First we had zero interest rate policy (ZIRP).

Now the elite establishment have launched negative interest policy (NIRP).

Let’s recap:

Central bankers since 2008 have sought to use low interest rates to boost global economic growth and increase inflation in order to bring elevated debt levels under control. Low rates are supposed to encourage debt-financed consumption and investment, feeding a virtuous cycle of expansion. They also increase wealth, encouraging spending. Low rates and abundant liquidity should drive inflation. Instead, these policies since 2008 have brought the global economy a precarious stability at best, and have not created economic growth or inflation.

As an investor you are screwed if you trust the system cause now they are bringing NIRP. The head of the world’s biggest asset manager warns bluntly:

“There has been plenty of discussion about how the extended period of low interest rates has contributed to inflation in asset prices. Investors are being forced to trade liquidity for yield by taking on more risk and investing in less liquid asset classes — a potentially dangerous combination for retirement savers. Not nearly enough attention has been paid to the toll these low rates — and now negative rates — are taking on the ability of investors to save and plan for the future. People need to invest more today to achieve their desired annual retirement income in the future. For example, a 35-year-old looking to generate $48,000 per year in retirement income beginning at age 65 would need to invest $178,000 today in a 5% interest rate environment. In a 2% interest rate environment, however, that individual would need to invest $563,000 (or 3.2 times as much) to achieve the same outcome in retirement. This reality has profound implications for economic growth: consumers saving for retirement need to reduce spending if they are going to reach their retirement income goals and retirees with lower incomes will need to cut consumption as well. A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.”

More from Jeffrey Kleintop, chief global investment strategist at Charles Schwab:

“It appears that NIRP is becoming the main policy tool for a number of major central banks as they battle falling inflation, rising currencies and economic weakness. The effectiveness of slightly negative interest rates is far from assured, and increasingly negative interest rates may not just weigh more heavily on the stock market, but on drivers of economic growth as well.”

In a speech, Fed Vice Chair Stanley Fischer said Europe’s experiment with negative rates is:

“Working better than I expected.”

How do you defeat that?

Trend following performance.

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