{"id":584,"date":"2016-02-26T10:30:31","date_gmt":"2016-02-26T10:30:31","guid":{"rendered":"http:\/\/investspectrum.com\/uma\/?p=584"},"modified":"2016-02-26T19:27:22","modified_gmt":"2016-02-26T19:27:22","slug":"negativeinterestratesandshrinkingbalancesheets","status":"publish","type":"post","link":"https:\/\/investspectrum.com\/uma\/negativeinterestratesandshrinkingbalancesheets\/","title":{"rendered":"Negative Interest Rates & Shrinking Balance Sheets"},"content":{"rendered":"

A little more than a year ago, the European Central Bank adopted a negative interest-rate strategy. The Bank of Japan recently followed suit.\u00a0 What is this strategy supposed to achieve, and how is it impacting financial markets?\u00a0 Let\u2019s start by examining what these central banks hope the negative interest-rate strategy achieves.\u00a0 The European Central Bank and the Bank of Japan are now charging their member banks on overnight cash reserves.\u00a0 The idea is to forcibly encourage member banks to loan money to potential customers that may in turn, stimulate the economy through spending, not saving.\u00a0 From the member bank\u2019s perspective, an outcome like that could entail higher than acceptable credit risk on the bank\u2019s loans.\u00a0 Member banks could also pass along the negative interest-rate to depositors which could lead to an exodus of their customers.\u00a0 The decision some banks have chosen is to not charge these negative interest rates to customers which then reduces\u00a0the member bank’s\u00a0balance sheets, putting pressure on their profit margins.\u00a0 The weakening of bank balance sheets is being labeled as one of the contributing factors\u00a0to the stressed financial markets, especially foreign markets (see chart below).<\/p>\n

\"US<\/a>

Click to Enlarge<\/p><\/div>\n

Other choices banks and investors have is to buy government bonds (foreign and US).\u00a0 Investors are taking their foreign assets and depositing them in \u201csafer\u201d US securities, playing a major role in boosting the US Dollar.\u00a0 The US has yet to adopt a negative interest-rate policy but Janet Yellen, the US Federal Reserve chair, has recently gone on record as saying that type of policy is \u201con the table\u201d<\/a>. This relatively new financial engineering has rippled through the global financial system and its long-term impact has yet to be seen.<\/p>\n

Spectrum’s Portfolio Management\u00a0Impact:<\/strong><\/p>\n

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The news itself of negative rates does not specifically cause positions to be altered in the Spectrum\u2019s funds or strategies. The influences, however, to the various asset classes, stocks, bonds, currencies, etc., can be assessed through the price action in those markets.\u00a0 This could be in the form of new trends, up or down, or through jagged price action.\u00a0 More specifically, positive influences can be seen in quality-rated bonds, corporate and government.\u00a0 Upward influences in the US Dollar have played a role in volatility and negative trends seen in global equity markets, primarily the emerging markets.\u00a0 Adjustments within our funds or strategies generally reflect these prevailing trends.<\/p>\n<\/blockquote>\n

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Disclosure<\/h6>\n

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by\u00a0Spectrum Financial, Inc.\u00a0in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Spectrum Financial, Inc. expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.\u00a0For full disclosure please see disclosures page here<\/span>.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A little more than a year ago, the European Central Bank adopted a negative interest-rate strategy. The Bank of Japan recently followed suit.\u00a0 What is this strategy supposed to achieve, and how is it impacting financial markets?\u00a0 Let\u2019s start by examining what these central banks hope the negative interest-rate strategy achieves.\u00a0 The European Central Bank […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[16,28,29,18,17],"class_list":["post-584","post","type-post","status-publish","format-standard","hentry","category-market-research","tag-central-banks","tag-federal-reserve","tag-financial-engineering","tag-janet-yellen","tag-negative-interest-rates"],"_links":{"self":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/584"}],"collection":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/comments?post=584"}],"version-history":[{"count":17,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/584\/revisions"}],"predecessor-version":[{"id":678,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/posts\/584\/revisions\/678"}],"wp:attachment":[{"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/media?parent=584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/categories?post=584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/investspectrum.com\/uma\/wp-json\/wp\/v2\/tags?post=584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}