TIAA-CREF Warns That Negative Interest Rates Are Coming

In all seriousness, I propose that Congress modify the Fed’s mandate to include a monetary policy version of the Hippocratic oath: First Do No Harm. Just following that simple precept would lead to an immediate reversal of the ZIRP/NIRP policies that have plagued the global economy since the Greenspan-Bernanke-Yellen triumvirate unleashed their war on savers and retirees 35 years ago. (The next step is to permanently reduce our reliance on excessive debt, but first things first.)

This morning I received a message from TIAA-CREF informing me, and all plan participants, to begin taking negative yields into account as we consider our future asset allocations. The message is available to the public at the following URL: TIAA-CREF Interest Rate Message.

The main points are summarized in the following screenshots from the web page:

TIAA-CREF-Negative-Yields

TIAA-CREF-Negative-Yields-2

Regular readers of my blog know that I have been predicting continuation of the Fed’s “all talk, no action” strategy for over a year now, with articles such as Deflation is the Main Reason the Fed Will Raise Rates Later Rather than Sooner (Mar. 27, 2015) and The Fed Won’t Raise Rates Until Deflationary Trends Reverse (Oct. 28, 2015). The main reason for the excess chatter and lack of actual rate increases was explained on Dec. 14, 2015: Leading Indicators Suggest U.S. Economic Activity Approaching Stall Speed.

Today we received confirmation that the U.S. economic activity is trending toward the rest of the world with an unusually honest headline from CNBC.com:

US-Economy-Grew-0.8-Percent

Although Bloomberg tried to spin this news as positive:

US-Economy-Grew-More

which is truly pathetic. Personally, I have never been able to solve a problem until I address the problem directly. I urge the highly-paid PhDs at the Fed to do the same. Combined with the imminent arrival of negative yields in the U.S. (joining Japan and much of Europe), the exhibitbelow completes the story. It’s a graph of the Baltic Dry Index (an index of global shipping activity) over the past 5 years. The blue arrow shows the 2.5-year trend. For the directionally-challenged, it’s DOWN. For the aspiring chartists, the index has made 3 lower highs over the period, and has started to form a fourth.

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Comments

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Maithili Purandare 3 years ago Member's comment

I like how you mentioned "all talk, no action". I strongly believe that addressing the problem just at the surface will not do us any good. Especially with the arrival of the negative yields, to what extent are rates going to drop?

Gary Anderson 3 years ago Contributor's comment

I think the bankers want to fund some governments, the favored ones, by negative bond yields. Investors will be taxed with negative rates. The only problems I see is 1. when will it stop, or how low will rates go. and 2. how are insurance companies and pension plans ever going to work properly?

Robert A. Weigand 3 years ago Author's comment

Thanks, Gary. Of course, low interest rates are like any other form of artificial stimulation. Markets like the "buzz" at first, but then ever-larger doses (QE programs, calculating P/E ratios with "adjusted" rather than GAAP earnings, etc.) are required to maintain the high. And, like any addict, the only way to get clean is to stop using and face the pain of withdrawal (-20% to -35% bear market). Volcker was a banker, and he knew how to prescribe harsh medicine when it was required. Greenspan, Bernanke and Yellen are part academics, part government apparatchiks.

Gary Anderson 3 years ago Contributor's comment

But then, Robert, something else has to be done to counteract the loss of GDP. Helicopter money as Eric Lonergan explains it seems reasonable to me.