Can I pay you to look after my money?
I wrote an article on LinkedIn back in March 2016 titled, “Investors with money to burn, losses guaranteed”. It summarised that, Berlin Hyp ( a German mortgage lender) issued a Euro 500m bond at a yield of -0.162%, becoming the first non-sovereign borrower to join the negative interest rate party.
Roll the movie forward 4 years, and the Bank of England historically last week, sold £3.8bn of three-year gilts at a yield of -0.003%. This means investors are paying the Government to hold their money and the offering was twice oversubscribed! If nothing else, this just shows how much money is floating around the system!
And since then, Andrew Bailey, the Bank of England governor, has confirmed that for the first time in its 324 year history, negative interest rates were under “active review”.
This is not negative yields for institutional investors with £100m to invest, but negative interest rates for you and me in our bank accounts. This could be implemented as soon as the June or Autumn meeting of the BoE Monetary Policy Committee. Its possibly the last tool avaialable when the economy drastically requires additional stimulus.
If this becomes a reality, what can you do?
- negative interest rates do not always translate to cheaper debt, you may want to load up on cheap debt but cannot
- suck it up and watch as inflation and negative interest, erodes real value
- start spending (goods and services), most likely on thing you really don’t need
- buy hard assets (property)
- invest in higher yielding secured fixed income assets (commercial real estate debt)
- find an investment that offers quasi equity like returns but is really a debt investment
Whatever happens, we are also entering into “The Great Migration of Wealth” the world has ever seen. In the upcoming years, trillions of pounds, dollars, Euros, yen etc and assets will be passed from Boomers to later generations, such as the biggest beneficiary, Generation X. Within 25 years, Generation X will become the wealthiest generation following the unprecedented, vast wealth transfer. Or will they?
Could this massive migration be suddenly tapped into by the government, as they did post WWII, in the form of inheritance tax (estate duty back then) when it rose to an eyewatering 85%, in order to pay for the costs of the COVID crisis. The Treasury has already recieved £2.2bn less in tax receipts in 2020 compared with 2019, that hole needs to be plugged soon. A quick but unpopular fix.
Photo by Philip Veater on Unsplash
