Finance and Stuff

Thoughts on finance and other stuff by Johan Lindén

Tag: Negative Interest

Inflation? Deflation? Financiation?

So what has happened lately in finance? Where is all the money going?

Federal Banks all over the world have printed money in true Keynesian style to counteract a falling economy.

In Europe, the European Central Bank, lent banks half a trillion for a mere 1% interest. It is basically the same blues that has been sung for the last couple of years and it is still going strong. I guess it ain’t over until the fat lady sings.

So where is this money ending up and why does not price indexes for goods and services increase?

Well, because a few people in the financial sector is taking all this money and are making themselves very rich. Think of it, you pay 1% interest, and the inflation is around 2-3%. So by just avoiding losing money you will make money with this ingenious system created by politicians and bankers.

If the market would have set the interest instead of politicians, would it be as low as 1%? Is all risk really calculated in that 1%? Now that is a ridiculous thought!

Negative Interest Rate in Swiss Franc… Again

Switzerland is now charging interest (or call it a tax if you want) if you want to lend the country your money! That is right, for every franc you want to lend them they will give you less back.

No matter how crazy this might sound, this is actually for the second time period in history that Switzerland charge investors to give them money. The first period where Switzerland had negative interest rate was in the 1970’s and that initially lead to a decline of 27% before the appreciation continued. Switzerland sure seem like a country who knows how to take care of its currency. Maybe something other countries could learn from.

Today you have to pay 0,82 Swiss Franc for a U.S. Dollar. The facts above indicates that the market sentiment is a bit stretched to say the least, and if the pattern from the 1970’s repeats, then there seem to be a good risk/reward to buy U.S Dollar with Swiss Franc. 0,7765 is where I put the stop loss for this idea, which is 5,3% below current value.

US Dollar Swiss Franc USD CHF

Beware! Be sure to understand money management and the risk of trading before attempting any trades. For instance, in the example above, if you only want to risk 1% of your trading capital you need to invest a fifth of your capital. There will be a risk and money management article coming up in later posts.

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