Savings and investments, a small guide to move in an upside-down world where those who pay money pay and who gets into debt is rewarded


Mario Draghi has finished the mandate in command of the European Central Bank leaving behind a new rate cut and starting a second Quantitative easing. For most observers a providential move that saved Europe and the euro. For a minority, however, a choice with dangerous consequences: the German representatives on the board ECB they have not failed to show impatience and bad feelings for the decision with which Draghi has carried out the monetary policies they have overturned the financial framework of the Old Continent. In this world upside down who lend money must pay to do it, the debtor receives a premium. THE government bonds of European countries such as Germany, France, Holland and Switzerland have negative interests on all deadlines, even those Thirty-year. Idem for Italian securities with a duration of less than 3 years. And the phenomenon is starting to interest too bonds issued by the companies. Meanwhile, banks begin to apply negative interests on deposits of current account holders. Here's what's happening, what the benefits and risks are and how to get around.

Because it happens – This is a new situation for Europe but already "tasted" in recent years since Japan. In an attempt to avert a recession and to bring inflation back to values ​​considered optimal (around 2%), the ECB has launched a series of monetary policies defined as "ultra-expansive". In practice, it is doing everything to make banks lend money, companies invest, consumers consume. Such as? Flooding the Old Continent with money. Two main levers used by the central bank. The first is the purchase program of Government and corporate bonds, that the ECB buys mainly from banks and funds by paying with "new currency", ie money created by the central bank. So far Frankfurt has spent on these operations more than 2,600 billion euros. The fact that there is a buyer on the market with theoretical availability unlimited (which buys not for profit reasons but for different purposes) causes one strong growth in demand for these securities. To the point that those who sell them to be financed can even ask for money to award them to a buyer, in the form of negative interests. For an annual title (one of the safest financial products in the world) the German state does, for example, pay, 0.6%. Who today buys 1,000 euros, in 12 months we will see a return of 994 euros. Why then does someone buy these titles? The ECB, which has 79% of European bonds at a negative rate in its belly, because it does not act to make profits. Someone else, like i pension funds, because he absolutely needs to keep at least some of the money he runs safely.

The second leverage is the rates applied to the deposits that you have banks European held at the ECB. 0.5% negative rates at the moment. It is a way of inducing banks not to keep money "still" but rather to put them in circulation, lend them. These rates have been in negative territory since the end of 2014, as of today the euro zone banks have paid the ECB interest for over 21 billion euros.

Benefits for consumers … – Rather than keeping the money still under these conditions, banks are even worth it lend them by losing. In the Scandinavian countries there is no lack of cases of real estate mortgages in which the contractor will return less than he received. In other words, the same mechanism that applies to states and companies begins to work for reliable individual debtors. For the moment these offers in Italy are not yet seen, but it is not excluded that sooner or later this taboo can also be broken. Anyhow loans and mortgages are already provided at very low rates. For those with real estate loans turned on for some time it is worth assessing the possibility of a subrogation: most likely by comparing the different offers you can find more advantageous conditions.

… but savers must think backwards – In this scenario, the value of government or private bonds with rates below zero has now reached i 15 thousand billion of Euro. Those who have money to invest find themselves in great difficulty. If you want to make some significant profits, you need to buy more products risky as shares or bonds of emerging countries and / or financially less solid companies (high yield bond). One of the objectives of the quantitative easing it is really depressing the returns of the safest securities to move money towards investments closer to the real economy. Essentially lend less money to the state and more to companies, buying shares corporate bonds. An alternative, in an inverted world, is to think in reverse. Bonds become shares, equities are bonds. What does it mean? To make money with Bot, Bund or Btp you have to rely not on the coupons (periodic interests), but onany increase in the value of the security, reselling it before the deadline. Exactly as until some time ago it would have been done with actions.

For the actions, more than on their appreciation, it is necessary to look at the dividends. Never as in this period in fact the returns from stock dividends are higher than those of bond coupons. In any case, it is a much more active investment approach. It is better to forget the times in which BTPs were bought and sleep was peaceful for 5 or 10 years. Moreover at this time the Italian government bonds represent a good compromise. They are among the few in Europe to offer positive returns and the country does not seem to run the risk of imminent financial collapses. In this scenario, savers have only one advantage: lVery low inflation. This makes the money does not lose value, or lose very little, even if it stands still or is invested so as to render little or nothing.

Mattress Option? – In theory, never as today would make sense keep money in cash. Low inflation and depressed returns reduce the loss of purchasing power that inexorably erodes the money not invested. However, the metaphorical mattresses cost more than you think. If you really want security, the notes must be kept in safe and insured places. All this has a cost that actually represents a negative return even for cash money. There is an alternative of deposit accounts. In this case you receive interest that in the best cases can even reach 1% per annum and the money is protected by interbank deposit protection fund. In essence, even in the unfortunate hypothesis that the bank should fail, the money in the account is insured up to 100 thousand euros. The downside is that these accounts involve thecommitment to bind the money for more or less long periods of time.

The dangers: bubbles and wrong signals about risks – This situation is not without its dangers, the extent of which is not yet completely clear even to experts. The abundance of money can easily lead to bubble proliferation. That is, to swell with prices of financial products you hate properties linked not to a real increase in value but to the simple fact that everyone buys. In general, the level of risk increases for those who invest. The fact that any financial product is in great demand also causes the yields of the most risky to fall. So the danger signal disappears which is inherent in the level of the interests. If a company has to pay 15% to be able to sell one of his obligations (ie to borrow money from investors), it is quite easy to see that this is a risky investment. But if the demand for this bond goes up (because everyone is looking for something that makes and lack alternatives) the same company can afford to pay significantly lower interest rates, maybe at 4 or 5%. Thus conveying the idea of ​​a relatively safe investment.

For various reasons, some shared, the banks they do not arouse great solidarity motions. However, it is true that in these situations, balancing the accounts for credit institutions is very difficult. Loans granted to paltry interests mean one drastic reduction in revenues. In perspective, therefore, a weakening of the credit system. It is no coincidence that from Germany, a country where the phenomenon of zero or negative rates is most exasperated, cries of pain have been coming to the ECB for some time to alleviate this situation.

Twitter @maurodelcorno


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