BoJ resorts to negative interest rates. The desperation is real.

[DucatiMonster696]

I'm not really sure how to solve their problems. It's not like Japan is a country of lounge about do nothings that don't work hard enough. If anything their problem would seem to be that their citizens live so long that they the system is feeling the constraints of paying for the increased life expectancy.

Well another issue compounding their aging population is that the Japanese people have been the historic purchasers of government bonds. In fact it was this bond purchasing trend and overall savings trend by the average Japanese person that helped sustain and keep Japanese government debt in the hands of the Japanese people by and large. It is the trend that kept them going in the face of the "Lost Decades" where growth was stagnate to weak yet savings, and the cost of living were stable and so the average Japanese person's standard of living as a result did not skip a beat even as the Nikkei plunged and did not recover.

However that is all going away now as what the BoJ is trying to accomplish today is essentially altering that balance by eroding the ability of the average Japanese person's ability to save money and to view government bond buying as a favorable alternative and sound investment savings plan. Instead of dutifully buying government bonds they are pushing anyone who wants to save into the stockmarket and when that crashes no amount of Nikkiea girlbands shilling stocks will provide any comfort to the average Japanese person.

 

[glenn1]

1.
a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
"pretax profits"

Sounds good to me. What's the problem exactly?

You might not care about risk adjusted return but most investors and every professional money manager does.

 

[Spungo]

You are also ignoring the current "mark to market" value if the bond goes to shit relative to the probability that you'll get your bond face value back at maturity.

Times like those are when you should be buying. If you bought HYG anywhere between Lehman collapsing and mid-2009, you would have done exceptionally well. People were terrified of junk bonds, so junk bonds were trading at an enormous discount.

There is an old saying (paraphrased) that you should start buying when people start killing themselves.
Oh, speaking of which, the suicide rate in Alberta is up 30% this year. link. It's foolish to try calling the exact bottom of the market, but Alberta real estate is probably a good investment in the near future. There must be some REIT or bank or something I can buy to profit from this. The weak Canadian dollar is another good sign. Cheap property measured in cheap currency units. It'll be a great profit when it can be sold at a better price and when their dollar is back up around 90 cents or more, which depends on oil and commodity prices recovering at some point.

 

[glenn1]

What are you saying?

10% default rate means that 90% don't default. Starting with money X on a 10 year investment would leave you with about:

(X * 1.9) - (X * 0.1) = X * 1.8

That is, if all of those defaulting never paid a single interest payment like you said, which is the worst possible outcome..

I'm just taking Spungo's parameters exactly as given, albeit with bits filled in for what the investment period is over and what the 7% refers to. Obviously this isn't taking into consideration any real world effects where the investment isn't really 7% annually or the default rate isn't really 10%.

You would only own one bond however, not the entire issue. So for an individual $1,000 face value 10-year 7% bond, your return could be anything from zero (no interest payments and total loss of principal) to $1,937 (10 years interest payments plus return of the original capital) or something in between. Anything less than the $1,937 total return or any payment in arrears puts the bond into default, it doesn't require a total loss.

 

[Shaun_Brannen]

Times like those are when you should be buying. If you bought HYG anywhere between Lehman collapsing and mid-2009, you would have done exceptionally well. People were terrified of junk bonds, so junk bonds were trading at an enormous discount.

There is an old saying (paraphrased) that you should start buying when people start killing themselves.
Oh, speaking of which, the suicide rate in Alberta is up 30% this year. link. It's foolish to try calling the exact bottom of the market, but Alberta real estate is probably a good investment in the near future. There must be some REIT or bank or something I can buy to profit from this. The weak Canadian dollar is another good sign. Cheap property measured in cheap currency units. It'll be a great profit when it can be sold at a better price and when their dollar is back up around 90 cents or more, which depends on oil and commodity prices recovering at some point.

Just be careful with investing, because we're still riding a bubble as a whole. It's going to pop at some point -- the recent downturn is not even close to what is going to happen (unless major changes are made, and we all know how our 11% rated congress feels about that).

 

[Exophase]

You might not care about risk adjusted return but most investors and every professional money manager does.

None of this has anything to do with my referring to the yield on a purely hypothetical investment as "profit."

You would only own one bond however, not the entire issue. So for an individual $1,000 face value 10-year 7% bond, your return could be anything from zero (no interest payments and total loss of principal) to $1,937 (10 years interest payments plus return of the original capital) or something in between. Anything less than the $1,937 total return or any payment in arrears puts the bond into default, it doesn't require a total loss.

I'm sorry, what are you getting at here? I was refuting that the statement that investments with 7% interest (presumably annual) and 10% default rate are mathematically guaranteed to lose money and like betting against the house long term at a casino.

 

[glenn1]

None of this has anything to do with my referring to the yield on a purely hypothetical investment as "profit."



I'm sorry, what are you getting at here? I was refuting that the statement that investments with 7% interest (presumably annual) and 10% default rate are mathematically guaranteed to lose money and like betting against the house long term at a casino.

It would depend on what interval you were using to calculate default. If annual then the average bond owner would lose money (presuming the stated interest was also annually payable) over the long term.

If we use more typical and logical intervals of annual interest and default over the duration of the bond, then your average gain/loss would hinge on the duration of the bond and when the default happened. I can't say what the probability of negative return would be over time but it's not mathematically guaranteed as you said.

 

[Knowing]

Peak Nikkei 225 was December 1, 1989 when it traded at 38916. Last year it hit 20000 for the first time since 2000.

Kuroda said just a week ago that he wouldn't go negative.

Their economic minister just quit over bribery claims.

Amazing things going on in Japan.

 

[Shaun_Brannen]

Gee, it sounds like the US. Except bribery is legal here (PACs).

 

[glenn1]

Peak Nikkei 225 was December 1, 1989 when it traded at 38916. Last year it hit 20000 for the first time since 2000.

Kuroda said just a week ago that he wouldn't go negative.

Their economic minister just quit over bribery claims.

Amazing things going on in Japan.

Don't worry, Keynesians will continue to advocate for stimulus until the heat death of the universe while arguing about how much worse it would have been without them.

 

[Shaun_Brannen]

Don't worry, Keynesians will continue to advocate for stimulus until the heat death of the universe while arguing about how much worse it would have been without them.

Stimulus would work, the problem is that the stimulus (whatever it would be) wouldn't be enough. To be enough, you'd have to completely change everyone's ideas on this "free market, trickle-down effect" thing. You'd have to totally re-wire people's perceptions on welfare. The wealthy would whine and complain if they had their taxes raised, so you can forget about wealth being re-distributed the easy way.

Nope, it'll have to be the hard way, and that means we're headed straight into a depression.

 

[werepossum]

Stimulus would work, the problem is that the stimulus (whatever it would be) wouldn't be enough. To be enough, you'd have to completely change everyone's ideas on this "free market, trickle-down effect" thing. You'd have to totally re-wire people's perceptions on welfare. The wealthy would whine and complain if they had their taxes raised, so you can forget about wealth being re-distributed the easy way.

Nope, it'll have to be the hard way, and that means we're headed straight into a depression.

You'd also have to completely change everyone's ideas on ownership and private property rights. Luckily, North Korea has already done all the thinking for us. You're just left with implementation and then it'll be glorious unicorns for everyone.

 

[HamburgerBoy]

You'd have to totally re-wire people's perceptions on welfare.

What does this mean? Most people on welfare in Japan are old people that keep sucking up medical expenses and pensions. afaik, welfare in the Western sense is pretty heavily shamed in Japan and other Asian cultures.

 

[Zorkorist]

It's obvious that stimulus is not the solution, but it is the problem.

Way too much Government is the problem.

Until Government is cut, there will be no solution.

No deficit spending. Reduce Payroll, reduce taxes, etc.

Government, has been proven time and again, not to work.

Freedom works. Individualism works. Competition works.

-John

 

[Spungo]

Just be careful with investing, because we're still riding a bubble as a whole. It's going to pop at some point -- the recent downturn is not even close to what is going to happen (unless major changes are made, and we all know how our 11% rated congress feels about that).

Canada as a whole is still in the bubble, but at least they're in a downtrend. It appears to be a steady downtrend, so that's nice. Crashes tend to wipe people out and cause panic.
XIU
The graph would look a lot more dramatic if priced in US dollars.

The closest I can find to something tracking Alberta commercial real estate is Morguard REIT. This is what economic collapse and 30% more suicides looks like:
MRT.UN

I can almost imagine what people at the Bank of Canada are thinking. "We just need lower interest rates. The global oil and copper prices will recover if our tiny nation has negative interest rates! Yeah, that's the ticket!" Of course, lower interest rates in Canada will have absolutely no effect on Chinese oil demand, so negative rates would accomplish nothing. The oil prices will naturally recover (after we naturally invade Saudi Arabia and a few other countries), and the bank of Canada will say "See! Our negative interest rates worked!" Oil money flows back into Alberta, real estate prices go parabolic because the economy is doing better and the interest rates are negative, allowing people to borrow ungodly amounts of money. Then I shall sell into the mania!

btw I would like to remind everyone that Bernanke was easing all the way down when the housing bubble was imploding. You can lower interest rates all you want, but you can't stop the business cycle. Investors don't care about numbers. They care about psychology. If they think prices are going down, herd mentality dictates people will panic and sell. Zero or negative interest rates will not make people change their mind and decide to buy into a crashing market.

 

[Shaun_Brannen]

It's obvious that stimulus is not the solution, but it is the problem.

Way too much Government is the problem.

Until Government is cut, there will be no solution.

No deficit spending. Reduce Payroll, reduce taxes, etc.

Government, has been proven time and again, not to work.

Freedom works. Individualism works. Competition works.

-John

Dear god, no.

The problem is the corporations corrupting the government. If the government weren't there as a buffer, we'd be getting screwed 100x harder.

You'd also have to completely change everyone's ideas on ownership and private property rights. Luckily, North Korea has already done all the thinking for us. You're just left with implementation and then it'll be glorious unicorns for everyone.

North Korea is a terrible example of socialism, but anyway, you're completely missing the point. The current problem isn't that there are wealthy people, the problem is that the wealthy are ludicrously wealthy. The proportion is way out of whack, no matter how sociopathic of a capitalist you may be. Even if you completely ignore the poor, the middle class's dollar buys far less than it used to.

However, wealth tends to pool, and those with wealth get to decide what goes on mass media and such. We're just going to be buying ourselves another 100 years or so...

 

[Zorkorist]

Nah.

I can easily not buy insurance, and avoid corporations. It is only when they are mandated by Government that I have a problem.

-John

 

[Shaun_Brannen]

Nah.

I can easily not buy insurance, and avoid corporations. It is only when they are mandated by Government that I have a problem.

-John

Okay, have fun living without utilities or using highways.

Guess who probably paid the government to make it mandatory? That's definitely what's happened with the ACA.

You are pointing the finger in the wrong direction. Lack of regulation gets us Standard Oil. I don't know why people like you seem to want Standard Oil.

There is such a thing as too much regulation, however it's not the major issue at hand by any means.

 

[Zorkorist]

Roads are built by men, not Governments.

-John

 

[Shaun_Brannen]

Roads are built by men, not Governments.

-John

Who pays the men? Rofl.

 

[Zorkorist]

Other men. Not Governments.

-John

 

[Zorkorist]

The customer.

-John

 

[Zorkorist]

When a customer pays, a transaction is balanced between buyer and seller.

When Government pays, it's all fucked up.

-John

 

[Shaun_Brannen]

Looks like you don't have a road to your home. It wasn't deemed profitable, sorry.

 

[Zorkorist]

It's okay. I can walk.

If enough neighbors want to build a road, we will.

We don't need Government, to spend into debt, and ask us to sacrifice ourselves to them, in order to build a road.

-John