Thursday, August 04, 2016

Cash, NIRP & Bonds
Cumberland Advisors' David Kotok provides an insightful analysis on the nature of money, cash & the trend towards negative interest rates in bond around the world .. "The characteristics of cash include the value of its purchasing power. 'Store of value' is one of money’s prime attributes .. With little inflation in the price level and mostly stable prices, the 'medium of exchange' function becomes very reliable." .. with negative interest rates, this "norm" changes .. "When the interest rate is zero or less than zero, which alternative is more desirable? In our view, it is cash. The risk rises in the negative-interest-rate security. The longer the maturity and the deeper the negative rate, the higher the risk associated with that instrument. That is the trade-off of negative interest rates versus cash." .. Kotok sees bond risk rising - "Our conclusion is that bond risk is rising. At Cumberland Advisors we are repositioning portfolios gradually in both taxable and tax-free bond accounts. We do that by altering the composition of the bonds to have more defensive characteristics and by shortening duration."
LINK HERE to the essay

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