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same here. I read that sentence and boom, wow. Speechless. So much truth and insight in such a short statement.

Also agree that if interest rates are zero then I guess many asset prices will go nearly to infinity, at least those assets on which people with access to cheap financing are bidding - New York or London appartment prices anyone????

by crankykarsten (cranky (where?) gmx dot organisation) on Mon Mar 14th, 2016 at 12:33:40 PM EST
[ Parent ]
Yea, but asset prices are not just influenced by current interest rates, but by the expectation of future average interest rates over the lifespan of the loan in question. It is the realisation that interest rates won't be going up any time soon which is driving asset prices, as much as the current interest rate and the (relatively) free availability of low interest loans to already asset rich buyers.

The other factor is that the increasing accumulation of capital by the 1% is resulting in a "savings glut" with little prospect of much of a return on any investment, let alone bank deposits.  Thus inequality in an of itself can drive asset prices higher leading to even greater inequality - until the next asset price bust in any case.  Most recent purchasers of property in ireland have been private wealthy individuals with no need to borrow in any case, or hedge funds with gazillions to spend in search of a big return.

Small businesses and mortgage buyers are still finding it difficult to get bank loans for working capital or home purchase. The banks are still sitting on a lot of money - hence the need for negative interest rates to encourage them to do what a bank should be doing in any case.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 14th, 2016 at 01:23:55 PM EST
[ Parent ]
True that "intreset prices are not just influenced by current interest rates, but by the expectation of future average interest rates over the lifespan of the loan in question." And, per Chris Cook in another forum where I posted my comment, most of this QE is in the form of T-Bills, which are of less than 52 week duration, so this is short term money. That potentially increases the risk. TBTFs can use QE money to fund SPVs that invest in the stock market, which they can exit quickly and for which they can hedge the downside risk. This can lead to greater volatility in stock prices, but worse, the TBTFs have been living off of term arbitrage forever and it is not hard to imagine them using some of this money to invest in longer duration investments. And, of course, hedges are only as good as the firm selling them.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 14th, 2016 at 01:33:33 PM EST
[ Parent ]
AFAIK Deutsche bank is close to being a zombie bank due to its huge losses on CFD and other financial exotica and thus Merkel is v. constrained in what she can do to bail out Greece or stimulate the German economy even if she wanted to.  The German taxpayer having to bail out Deutsche bank would be a disaster for their self-image of prudence. Basically Deutsche bank appears to have followed Goldman Sachs et al in the speculative investment field but didn't get out in time. Typically German:  Too slow to do everything and nothing near as prudent as their self image suggests.  Better to blame the Greeks...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 14th, 2016 at 02:10:07 PM EST
[ Parent ]
I didn't know about Contracts for Difference. Well, it seems DB, for a change, did its CUSTOMERS a favor, some of them at least.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Mar 14th, 2016 at 03:39:50 PM EST
[ Parent ]
The straw that stirs the drink in the US is mortgages.  With a few exceptions (locations mortals can't afford to buy under any circumstances), price fluctuations are dictated by availability of financing.  Cheap financing, real estate goes up.  Truer with residential than commercial at least initially (residential borrowers are more rate-dependent, and residential lenders have more tax and regulation breaks than commercial), but as a real estate booms proceeds, commercial speculation increases, and the flips get quicker.  In the end, the return period for both residential and commercial shortens dramatically, and on the residential side, mortgage interest is the biggest tax break you can have, so it has a built-in return.
by rifek on Mon Mar 14th, 2016 at 04:22:16 PM EST
[ Parent ]

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