Hedging against inflation?

[3 hound]

Yes, you said "I have no money I can borrow a million and get the million to keep." I wanted to get in on this money borrowing opportunity of yours, but turns out like everything else...just big talk.

Do the hard yards and stop whining. Convince a lender you have the capability to pay your debts plus interest and you to can get a loan.

 

[JohnDe]

Do the hard yards and stop whining. Convince a lender you have the capability to pay your debts plus interest and you to can get a loan.

I did, and I have. Also was involved with my sons loan approval for his first home. So when you said "I have no money I can borrow a million and get the million to keep." I knew that you were either stirring the pot of others having a serious debate, or you are full of BS. Just wanted to give you the benefit of the doubt, maybe you could get such a loan. No, just a **** stirrer.

 

[3 hound]

I did, and I have. Also was involved with my sons loan approval for his first home. So when you said "I have no money I can borrow a million and get the million to keep." I knew that you were either stirring the pot of others having a serious debate, or you are full of BS. Just wanted to give you the benefit of the doubt, maybe you could get such a loan. No, just a **** stirrer.

I was asking a question about what negative interest meant, you could have answered or just ignored it but instead you chose to be a drama queen.

 

[JohnDe]

I was asking a question about what negative interest meant, you could have answered or just ignored it but instead you chose to be a drama queen.

I thought discussion was about the topic of the thread Hedging against inflation?

I didn't see a question in your comment -


There are multiple threads on interest rates - https://www.aussiestockforums.com/search/227920/?q=interest+rates&o=relevance

A quick google can also find everything you need -

What Is a Negative Interest Rate?​

The term negative interest rate refers to interest paid to borrowers rather than to lenders. Central banks typically charge commercial banks on their reserves as a form of non-traditional expansionary monetary policy, rather than crediting them. This is a very unusual scenario that generally occurs during a deep economic recession when monetary efforts and market forces have already pushed interest rates to their nominal zero bound. This tool is meant to encourage lending, spending, and investment rather than hoarding cash, which will lose value to negative deposit rates.​

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KEY TAKEAWAYS​

• Negative interest rates are a form of monetary policy that sees interest rates fall below 0%.
• Central banks and regulators use this unusual policy tool when there are strong signs of deflation.
• Borrowers are credited interest instead of paying interest to lenders in a negative interest rate environment.
• Central banks charge commercial banks on reserves in an effort to incentivize them to spend rather than hoard cash positions.
• Although commercial banks are charged interest to keep cash with a nation's central bank, they are generally reluctant to pass negative rates onto their customers.

​

Understanding Negative Interest Rates​

An interest rate is effectively the cost of borrowing. This means that lenders charge borrowers interest when they take out any type of debt, such as a loan or mortgage. Although it may seem strange, there are instances where lenders may end up paying borrowers when they take out a loan. This is called a negative interest rate environment.​

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Negative rates are normally set by central banks and other regulatory bodies. They do so during deflationary periods when consumers hold too much money instead of spending as they wait for a turnaround in the economy. Consumers may expect their money to be worth more tomorrow than today during these periods. When this happens, the economy can experience a sharp decline in demand, causing prices to plummet even lower.​

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When strong signs of deflation are present, simply cutting the central bank's interest rate to zero may not be sufficient enough to stimulate growth in both credit and lending. This means that a central bank must loosen its monetary policy and turn to negative interest rates.​

 

[divs4ever]

Do the hard yards and stop whining. Convince a lender you have the capability to pay your debts plus interest and you to can get a loan.

i do the easy yards ,and save away , and just don't bother applying for the loan

but i am betting others will NOT do that , and i hold CCP , CCV , and a selection of minor banks ( because i back human nature , when i invest )

 

[divs4ever]

now sensible ways of hedging against inflation , would include investing in assets that will retain relative value ( long term )

so traditionally that would include ( physical ) gold and silver , collectibles , forward buying of durable goods ( consumable , like rice , salt etc. ) and not ( say quality tool-sets )

the simple logic is if your cash will buy less tomorrow , you may as well buy today ( assuming you have room for storage )

now this might not work this time , but do you bet 100% that it will be different this time ??

ideally you invest in areas that will flourish in difficult times but what will they be this time ( it used to be alcohol , tobacco , and gambling )

gambling is a bit of a mess ( except maybe TAH ) tobacco is hard to access on the ASX , these days , wine and whiskey makers are listed , not so easy to find a big beer maker

an interesting investing scenario currently

 

[Value Collector]

Explain this, I do not even get what negative interest rates means, sounds like it supposed to mean the lender pays you to borrow their money instead of charging you.?



Channeling my inner economist - things will get worse then they will get better.

Negative interest rates normally refer to bonds, particularly government bonds.

When bonds are sold to the public at prices higher than their face value, and the interest rate is low enough that over the life of the bond the interest earned won’t cover the difference, the bond is referred to as having a negative interest rate.

For example, a 3 year bond with a $100 face value and 1% coupon rate, could sell in the market for $105.

Over the three years the owner of this bond will be paid $3 interest ($1 per year), and at the end of the 3 year term they will be paid the $100 face value.

But because they originally paid $105 for the bond they will suffer a loss of $2, that’s where the negative interest rate is.

———————
You might ask why the hell anyone would purchase a bond at a price that would generate a negative return, and there are a few answers to this depending on who they are.

1, The reserve bank will print money and use it to bid for the government bonds as a form of stimulus, this raises the bonds price in the market forcing other investors out of the bond market into other investments while also cramming more cash into the economy.

2, some companies with billions of dollars need to put the cash some where that’s government guaranteed regardless of the price, and will buy the bonds even at a slight loss

3, some insurance companies and other financial institutions have legal obligations to hold a certain portion of their funds in government bonds.

 

[divs4ever]

Negative interest rates normally refer to bonds, particularly government bonds.

When bonds are sold to the public at prices higher than their face value, and the interest rate is low enough that over the life of the bond the interest earned won’t cover the difference, the bond is referred to as having a negative interest rate.

For example, a 3 year bond with a $100 face value and 1% coupon rate, could sell in the market for $105.

Over the three years the owner of this bond will be paid $3 interest ($1 per year), and at the end of the 3 year term they will be paid the $100 face value.

But because they originally paid $105 for the bond they will suffer a loss of $2, that’s where the negative interest rate is.

———————
You might ask why the hell anyone would purchase a bond at a price that would generate a negative return, and there are a few answers to this depending on who they are.

1, The reserve bank will print money and use it to bid for the government bonds as a form of stimulus, this raises the bonds price in the market forcing other investors out of the bond market into other investments while also cramming more cash into the economy.

2, some companies with billions of dollars need to put the cash some where that’s government guaranteed regardless of the price, and will buy the bonds even at a slight loss

3, some insurance companies and other financial institutions have legal obligations to hold a certain portion of their funds in government bonds.

WOW , that seems even more twisted than my understanding

am NOT saying you are wrong , but that sounds like financial self-mutilation to me

factor in that bond is also being ravaged by inflation PLUS a guaranteed capital loss ( and tax liability on the income )

the current financial structure is really messed up ( in some nations )

 

[Value Collector]

WOW , that seems even more twisted than my understanding

am NOT saying you are wrong , but that sounds like financial self-mutilation to me

factor in that bond is also being ravaged by inflation PLUS a guaranteed capital loss ( and tax liability on the income )

the current financial structure is really messed up ( in some nations )

Remember the biggest buyer of bonds when interest rates are negative is probably going to be the Reserve Bank of that country, and the Reserve bank is printing the money it uses to buy them, so they aren’t really making a capital loss, they are printing $100 notes for a few cents each.

As for the other buyers, they have to put their money some where, I guess to avoid negative interest rates they could with draw their money in cash and stick it in a vault, but then that costs money as well, eg buying the vault and paying security guards to guard it, and if it gets stolen in transit you loss your entire capital amount (talk about a big capital loss).

As for insurance companies, they have to follow the law, and if that means losing 1% a year on the funds they are holding in bonds they will factor that into the price they charge customers for insurance.

 

[3 hound]

Remember the biggest buyer of bonds when interest rates are negative is probably going to be the Reserve Bank of that country, and the Reserve bank is printing the money it uses to buy them, so they aren’t really making a capital loss, they are printing $100 notes for a few cents each.

As for the other buyers, they have to put their money some where, I guess to avoid negative interest rates they could with draw their money in cash and stick it in a vault, but then that costs money as well, eg buying the vault and paying security guards to guard it, and if it gets stolen in transit you loss your entire capital amount (talk about a big capital loss).

As for insurance companies, they have to follow the law, and if that means losing 1% a year on the funds they are holding in bonds they will factor that into the price they charge customers for insurance.

Is it worth lobbyIng our illustrious leaders to make a AUD note of a higher value so you can take them out of the bank for self storage easily to avoid negative interest eg $100 000 note. Better than holding a 1000 $100's.

I would actually like to have a mix of physical gold and some $1000 000 notes - gold would be much higher in the mix tho.

 

[Value Collector]

Is it worth lobbyIng our illustrious leaders to make a AUD note of a higher value so you can take them out of the bank for self storage easily to avoid negative interest eg $100 000 note. Better than holding a 1000 $100's.

I would actually like to have a mix of physical gold and some $1000 000 notes - gold would be much higher in the mix tho.

The bank won’t charge you a negative interest rate, it’s the big dogs that hold bonds instead of cash at bank that will pay the negative rates. (Did you actually read and understand my original post)

Gold is subject to fluctuation so way under perform a negative rate bond some times.

 

[3 hound]

The bank won’t charge you a negative interest rate, it’s the big dogs that hold bonds instead of cash at bank that will pay the negative rates. (Did you actually read and understand my original post)

Gold is subject to fluctuation so way under perform a negative rate bond some times.

I read your post but still trying to understand it TBH.

At least for me these are not simple concepts.

 

[divs4ever]

Is it worth lobbyIng our illustrious leaders to make a AUD note of a higher value so you can take them out of the bank for self storage easily to avoid negative interest eg $100 000 note. Better than holding a 1000 $100's.

I would actually like to have a mix of physical gold and some $1000 000 notes - gold would be much higher in the mix tho.

LOL we can't have big denomination notes because drug dealers ( and pensioners ) hoard them ( well that is what we are told )

and God forbid pensioners become independent of the government and banks .. the drug-dealers well the CIA protects the big ones

 

[divs4ever]

I read your post but still trying to understand it TBH.

At least for me these are not simple concepts.

you must be fairly young then .. there was a time ( in Australia ) when a bank would charge you a monthly account-keeping fee , and TRANSACTION FEES , INCLUDING receiving your government pension ( or social security ) payments in your bank account so payment IN also invited a fee no matter who paid into the account ( and THEN the bank would lend that money out at a profit , which it MIGHT reluctantly share with the account holder )

so SOME in my generation have a very harsh opinion of our 'pillars of society ' ( our major banks )

the only difference now it they are gouging the BIG end of town as well ( in some countries )

 

[Value Collector]

I read your post but still trying to understand it TBH.

At least for me these are not simple concepts.

If there is any part you need me to explain a in a bit more detail let me know.

But basically one major part to remember is that bonds are traded on a market similar to shares, and their prices fluctuate above and below their face value.

If you own a $100 bond, you will be paid $100 on the date it matures, and it will have an interest rate that is paid based on that $100 face value.

But, the price you pay for the bond upfront is not necessarily the same as the face value, eg you could pay $30 for that $100 bond or you could pay $150 for it depending on a range of conditions in the market.

Some bonds even pay 0% interest over their life, but sell for say $80 upfront, so when they mature in 5 years the owner gets paid the $100 face value, so they make a capital gain of $20 rather than regular interest payments.

 

[divs4ever]

Do the hard yards and stop whining. Convince a lender you have the capability to pay your debts plus interest and you to can get a loan.

the key word is 'convince ' i remember an intrepid property developer , Christopher Skase , who was very good at convincing , however the banks were not so happy about the rate of repayments .. the Irony was the name of his signature projects .. was Mirage Resorts

 

[3 hound]

If there is any part you need me to explain a in a bit more detail let me know.

But basically one major part to remember is that bonds are traded on a market similar to shares, and their prices fluctuate above and below their face value.

If you own a $100 bond, you will be paid $100 on the date it matures, and it will have an interest rate that is paid based on that $100 face value.

But, the price you pay for the bond upfront is not necessarily the same as the face value, eg you could pay $30 for that $100 bond or you could pay $150 for it depending on a range of conditions in the market.

Some bonds even pay 0% interest over their life, but sell for say $80 upfront, so when they mature in 5 years the owner gets paid the $100 face value, so they make a capital gain of $20 rather than regular interest payments.

I am liking the sound of bonds.

 

[divs4ever]

If there is any part you need me to explain a in a bit more detail let me know.

But basically one major part to remember is that bonds are traded on a market similar to shares, and their prices fluctuate above and below their face value.

If you own a $100 bond, you will be paid $100 on the date it matures, and it will have an interest rate that is paid based on that $100 face value.

But, the price you pay for the bond upfront is not necessarily the same as the face value, eg you could pay $30 for that $100 bond or you could pay $150 for it depending on a range of conditions in the market.

Some bonds even pay 0% interest over their life, but sell for say $80 upfront, so when they mature in 5 years the owner gets paid the $100 face value, so they make a capital gain of $20 rather than regular interest payments.

YEP , we agree on that

my understanding was the negative part with the bond eroding capital over the duration ( as opposed to your explanation )

sort of like the shrinkage of some gold ETFs

cheers

but i suppose anyway it is structured is still a bad deal for the lender , considering the risk taken and the returns received

 

[divs4ever]

I am liking the sound of bonds.

in the past YES ( between 2011 and 2016 , for me ) i had some very happy outcomes , currently no , thank you ( not with my money )

 

[3 hound]

in the past YES ( between 2011 and 2016 , for me ) i had some very happy outcomes , currently no , thank you ( not with my money )

Why you no like anymore?

Sounds like guaranteed gain in value.