Negative Interest Rates: First ECB, now SNB

First the ECB lowered interest rates on deposits to -0.1% in June 2014. Now the SNB lowered interest rates on its deposits to -0.25%. Commercial bank deposits will follow soon and what would you do when you are charged for depositing money in your bank?

All of this is because the yield curves are flattening, and yields cannot be too close to each other, or we get a recession.

The effect of this drop in deposit rates should be that eventually investors remove their money from those banks and invest it in something else. Lending and spending will increase and the bubble becomes an even bigger bubble.

I do not need to tell you this is good for gold. In fact, denying the Swiss gold referendum is actually bullish for gold as the SNB can do whatever it wants now…

1) Yields go down due to lower interest rates.
2) CPI goes up through inflating the bubble.

Swiss Gold Repatriation Almost Reality

A year ago, 4 Swiss parliament members launched the “Swiss Gold Initiative” to repatriate their gold to Switzerland. Today, almost one year later we have 90000 supporters for this initiative. Once the 100000 supporters is reached, we are certain that the Swiss National Bank will repatriate their gold holdings. I’m sure those 10000 votes will be reached by March 2013.

So not only the Germans want their 3400 tonnes of gold back, now the Swiss want their gold back.

As of September 2012, the SNB had 55591 million CHF gold (Table 1). That’s 59139 million USD gold or 33.4 million ounces of gold or 1040 tonnes of gold. That’s one third of Germany’s gold and is pretty significant.

The SNB hasn’t said where its gold is and also hasn’t said if it will repatriate their gold all at once, but if they were to repatriate it all at once, it would be almost double the amount that Germany is now repatriating over 7 years: namely 674 tonnes of gold.

Table 1: Swiss National Bank Balance Sheet

Other countries who want their gold back are: Ecuador (26 tonnes), The Netherlands (613 tonnes)

How low can negative yields on Swiss bonds go?

We have been seeing negative bond yields in Switzerland and Germany. Which is very odd if you ask me. The question begs to be asked: “How low can negative yields go?”.

To give an answer to this you need to have an understanding of the price-yield curve of bonds. You can gain money if yields go lower (bond price rises), but you will lose money because you need to pay interest on the negative yield. So there should be an equilibrium point and as a scientist I very much want to find that equilibrium point.

There is a very nice online tool for the price-yield curve on this site: Wolfram: Price-Yield Bond Curve.

Inputs for this tool are:
1) Years to maturity (if you buy a new 2 year bond it has 2 years to maturity)
2) Annual Coupon payment (the amount of cash you get per annum)
3) Yield (the annual percentage cash you get on the principal)

I will analyze the 2 year Swiss government bonds in this article.

Chart 1: Swiss 2 year Government Bonds

Swiss Government Bonds Spike

Swiss government bond yields dropped to a record -0.23% on 31 May 2012. There is no reason why 2 Year Swiss government bonds should have such low yields (chart 1), other than the fear that the euro will break up or the Swiss National Bank will de-peg against the euro.

Go HERE to read the full analysis.

Chart 1: Swiss Government Bonds 2 Year

Deflation Starts, Followed by Hyperinflation: Swiss Government Bonds Yields Hitting New Low

This article is meant to give a status update on the economy and in particular money supply. We will see that deflation is starting to show up. I will focus ono bonds, foreign exchanges, precious metals, money supply and personal savings.

To see the full analysis, go here:
http://seekingalpha.com/article/614231-deflation-sets-in-hyperinflation-to-follow