Investing for fiscal stimulus is critical in a negative interest world. Too much money is chasing bond returns. What companies will benefit the most as world economies drift towards recession?
Planet Money – Episode 940: Interest Rates… Why So Negative?
The economy as we know it is changing. All over the world, interest rates are very low. In some places, they are so low that something inconceivable up until a few years ago is happening: interest rates are going negative.
Government bonds from countries like Germany, Japan, France, Sweden, Denmark, and Switzerland now have negative interest rates. There are approximately $16.5 trillion dollars of bonds outstanding that pay you back less than you put in.
Today on the show, we try to answer some questions that go to the heart of the state of our economy: Why is this happening? And what will the consequences be?
Investing for Stimulus
My quick take is that more money is chasing investment (therefore lowering returns) because older populations save and younger populations who anticipate growing old save more than those who do not expect to live long. Additionally, rich people save a higher proportion of earnings, so increasing wealth disparity drives bond returns to below zero in many countries. Negative interest rates appear likely to be a long-term phenomenon leading to recession. The impact of wealth disparity was also discussed by Chris Martenson on Sea Change Radio (podcast).
Countries will increasingly need to depend on fiscal stimulus, not monetary policy. For example, see Building Progressive Infrastructure.
Question: I want to be investing for fiscal stimulus. What companies will benefit most from the upcoming stimulus from governments? Advice from my readers on rebalancing my portfolio to take into account this upcoming shift in economic policy would be greatly appreciated.
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