Zirp

[yellowperil]

Up here (Canada)lots of talk today about ZIRP (Zero Interest Rate Policy) even negative
interest rates. ??? What the heck is that? Sounds like we're in trouble. Can't be good.

[yellowperil]

Sorry about the double post, would like to delete, but...

[GH85Carrera]

How can you have negative interest? Are the banks going to charge the customers for the money they store and the more you have in the account the more they charge?

Interest rates are stupid low now.

[tadd]

GH:
Negative interest implies that the government is doing cash infusions. Our FED calls it quantitative easing. It has the same overall effect of banks giving you money...its just the banks are getting it and not you :-).

[jyl]

Negative interest rates can also mean the central bank charges banks interest on funds deposited at the central bank. Supposed to be an incentive for banks to loan out their money. Not sure it works.

Negative real interest rates means central bank rate (like fed funds rate) is lower than inflation. We have that in the US, Europe does too. I don't think that is terribly unusual, but I haven't really studied it.

Canada and other commodity-based economies are suffering from commodity prices being as low as post-recession levels. Oil, iron, coal, etc. For countries whose economies are based on value add industries, low commodity prices are good. For economic forecasting, low commodity prices are often a warning sign. Means demand is slowing, demand is changing, or supply is excessive. Currently i think there is some of all the going on.

[NoRush993/951]

Negative interest rates allow companies to borrow at zero and buy back their stock to prop it up and keep from crashing. Think of all your natural resource companies that are going broke. They need to roll over debt and anything left will be used to buy back stock to reduce the float. Otherwise mass unemployment and pink slips will be handed out. Too many large employers with negative cash flow.

[jyl]

Originally Posted by NoRush993/951

Negative interest rates allow companies to borrow at zero and buy back their stock to prop it up and keep from crashing. Think of all your natural resource companies that are going broke. They need to roll over debt and anything left will be used to buy back stock to reduce the float. Otherwise mass unemployment and pink slips will be handed out. Too many large employers with negative cash flow.

No one is lining up to lend to those companies, and their stock prices certainly are not being propped up. For example, take the US domestic oil industry. Have you looked at the stock prices?. We're seeing bankruptcies, fire sales on assets, dividend cuts, and mass layoffs (about 100,000 so far).

[tabs]

I told u so

[dlockhart]

Originally Posted by jyl

No one is lining up to lend to those companies, and their stock prices certainly are not being propped up. For example, take the US domestic oil industry. Have you looked at the stock prices?. We're seeing bankruptcies, fire sales on assets, dividend cuts, and mass layoffs (about 100,000 so far).

He was sort of correct in a roundabout way.

The buyback bonanza shown above is of course sponsored by ZIRP. Put simply, when borrowing costs are close to zero and when the market has become completely myopic as it relates to assessing performance, it makes sense to issue debt and plow the proceeds into EPS-inflating share repurchases. Throw in the fact that the FED-induced hunt for yield has forced risk averse investors out of govies and into corporate credit and you have a kind of goldilocks scenario for corporate issuance and buybacks.
"Risky Business": Companies Are Now Funding Share Buybacks By Selling Bonds To Other Companies | Zero Hedge



The more recent update.

Why The Stock Buyback Spree Is Ending | Zero Hedge

[jyl]

I agree - but not resource companies.