Wednesday, August 03, 2016

Don Coxe Says Negative Rates Will Take Gold 
To Heights Never Before Seen 
In The History Of Mankind
Coxe is cautious in saying there is something new under the sun. He didn't think he would live long enough to see the creation of an entirely new asset class, which is negative & seemingly endless in scope. Negative yields were first created by the self-financing Swiss to get the euro-zone moving again. Coxe likens them to the multiplying of bad germs, & finds it likely that there will be painful corrections in the economy, the stock market, or both. Negative yields are a big challenge to the mathematics of wealth accumulation. This fastest-growing asset class not only won't pay you, but it won't pay you back. It challenges the capital asset pricing model, which is the basis of all actuarial valuations and pension plans. Paying dividends to stock holders and interest to their bankers & bond holders had been the process since the birth of capitalism. It's a new crisis for social security & pension funds around the world .. 28 minutes

1 comment:

Anonymous said...

Coxe has many good points with which I have to agree. Quite educational.

However I have to correct him on at least one point. Actuaries were doing their sums, discounting cash flows, hundreds of years before the Capital Asset Pricing Model was invented in the later prat of the 20th century. I think that what he means to say is that discounting future cash flows with negative interest rates is completely novel and potentially down right dangerous.

Most pension plans and the like were originally costed using positive interest rates. Over the long term negative interest rates represent a significant extra cost to provide for the contracted benefits.

It is rather like feeding people today with seed corn and to Hell with next years crop. In short the implicit assumption of growth becomes spurious. More to the point now-a-days is an assumption of decay.

As for Clinton versus Trump .... sure Clinton has a record. We know what to expect from her. DISASTER !