NIRP as a Wealth Confiscation Tax

     Negative interest rate policy (NIRP) has befuddled us all for far too long, so your MacDougal Post staff sat down in extended session and came to grips with this goofiness once and for all.  If you and I have to pay the Federal Government relatively modest sums of money each year for the privilege of loaning failed politicians towering piles of our capital because they disdain functioning within a budget, then one thing it clearly isn't, and that's interest.

     Therefore, there is no such thing as negative interest.  It does not exist in the real world that we, and our valued subscribers, live in.  Given that, then the obvious should hit you the way it did us.  Like a ton of bricks.

    NIRP is another g%dd&m tax.  Like the $&@#!%& income tax or the $&@#!%& capital gains tax, or the $&@#!%& tax they're collecting on our social security income now, it's a Federal $&@#!%& tax.  Only, unlike the rest, NIRP is the nuclear option of revenue collection, a WEALTH CONFISCATION TAX.

     Zero interest rate policy (ZIRP) pays investors miniscule, below-free-market rates on Treasury securities, but at least it's something.  Under NIRP, look what happens if you take this confiscatory obscenity to a logical extreme: a 20% negative interest rate on T-bonds, discounted, meaning payable in advance.

    The first day you sink one million dollars into one of their g%dd&m NIRP bonds, you give them $1 million and they take 20%, or $200 thou, out of your balance as negative interest, leaving you with $800 thousand.  On day one of the second year, they take another 20% the same way, or $160 thou this time, leaving $640 thousand.  In one year and one day, the Feds have helped themselves to $360 thousand of your rapidly disappearing bankroll.

     We've seen 20% free-market interest rates on T-bonds in our lifetime. Is anyone cockamamie enough to believe the Central Party won't come up with 20% negative rigged interest rates if the profligates need it to cover over-the-top spending?  And if the $#%!&^#$ only take 2% instead of 20%, that's still wealth confiscation even though "only" $20,000 revenue goes to them that first year, and how are you supposed to &%$#@!$ live on a declining capital balance anyway?



ZIRP-A-Dee-Doo-Dah,
NIRP-A-Dee-A.

My, oh my, what a pitiful day,
Plenty of sorrow heading my way,
ZIRP-A-Dee-Doo-Dah
NIRP-A-Dee-A.

Mister Taxman's on my shoulder,
It's the truth,
It's a worry,
Everything's confiscatory.

ZIRP-A-Dee-Doo-Dah,
NIRP-A-Dee-A,
Sorrowful feeling,
Sorrowful day.

Yeah.

ZIRP-A-Dee-Doo-Dah,
NIRP-A-Dee-A.

Price Rigging in T-Bonds - the Next Wall Street Scandal?

     We can't wait to find out what this is all about:

http://nypost.com/2016/03/20/goldman-sachs-allegedly-rigged-prices-of-treasury-bonds/?utm_medium=email&utm_campaign=NY%2520Post%2520Newsletter&utm_source=Sailthru

Stockman Tackles The Latest Chinese Misstep Head-on

     It's worth the free sign-up to Seeking Alpha (SA) just to devour this David Stockman piece, and the best SA buy-side contributors keep coming up with comparably spot-on slants that sell-siders seem, at best, systemically reluctant to share.

     Our informed subscribers are ready to delve into this cutting-edge material without comment from us:

http://seekingalpha.com/article/3957402-world-economy-wreckers-beijing?ifp=0&app=1

Negative Interest Rates v Coca-Cola's Floating Rate Bond

     Last November, The Coca-Cola Company (Coke) issued a bond maturing in 2019 with coupons paying 0.15% over something called the three month Euro Interbank Offered Rate (Euribor).  The June 9 coupon payment gets calculated today.  Were this money amount based on the 0.15% factor, as stipulated, with the Euribor yielding -0.221% now, bondholders would have to pay Coke .071% on June 9.  (We assume all rates to be annual, later reduced to interims in coming up with appropriate money amounts).

     Fortunately, Reuters tells us, Coke has placed a floor of 0.0% on said factor, removing their 2019 bond issue from negative interest rate status, so bondholders will simply receive nothing this time instead of having to make a payment to the company.

     Not all bonds, floating rate or otherwise, carry such protection, however, and we get the impression that fixed income markets are getting weirder and weirder out there as more central banks force negative interest rates on captive investors and existing negative rates keep heading deeper and deeper into depravity, but other than suggesting subscribers exercise extreme caution when entering bizarroland, we don't know what to tell you.

     There's no road map for what's going on out there or where we're headed in it.

Corporate Welfare in a NIRP World, Part II

     (This thing called Negative Interest Rate Policy (NIRP) looms in front of a beleaguered investment community as an alternate universe, some strange and alien wasteland where failed central bankers go to play out their final days in ignominy and defeat.  It is bereft of anything resembling accomplishment or feted deed.  Near as we can tell, no one who's ever been there has come back alive through any actions other than those effecting the total obliteration of their tragic days trapped inside the damnable place. We have nothing in hand to guide us in searching out any possible future today's investors may have in this forbidden netherworld, and are hesitant to turn an adventurous eye downward, not knowing what one could possibly find amidst the horrors of monetary purgatory. Do not take the following to be our final word on the matter, or our current word, for that matter, starting maybe ten minutes after this particular conjecture gets published.

     The only thing we can say for sure, is that Keynesian economics has proven once and for all - and with absolute certainty - that parallel universes do exist, though one doesn't expect Academia to concur - or even acknowledge that Keynesian economics itself ever existed at all once that formerly erudite wordage has been seen to have finally hit the proverbial fan.)

     Exxon Mobil, Microsoft, and Johnson & Johnson have better credit ratings than the United States of America.  What happens with them when the central bank of the United States of America pushes interest rates on Treasury securities into negative territory through NIRP?  Will Exxon Mobil bondholders have to pay that company for the privilege of parking huge piles of dough in Exxon Mobil bonds?

     Theoretically, one surmises, it should become so.

     And thus, with bondholders paying Exxon Mobil interest instead of the other way around, one has to beg the question, why would a gilt edge NIRP corporation need to keep an equity balance on the books?  Any equity balance at all.  They'd still need shares, or a single share at least, because stock represents ownership and somebody has to own the business even if, after all the buybacks one would anticipate in the NIRP universe, it's just the CEO.

     Complicating that issue further, with Big Government subsidizing Big Business to the point where Big Business' interest expense has become interest income, would Exxon Mobil not become one of those state-owned enterprises like we see today in Commie China inside the extant parallel universe?

     In the world we know, some corporations function just fine without any long term debt at all.  Under NIRP would state-owned enterprises operate just as swimmingly without a dollar balance in the Equity section of the balance sheet?  Owners of a going concern need to put up money to stave off insolvency and bankruptcy.  Basically there's no other reason.  It's hard to see financial failure as even remotely possible when 1) the state has some weird kind of ownership interest in the enterprise and 2) you can always get people to pay you for lending you more dough whenever you need any.  No longer is there a wolf at the Big Business door.

     Talk about too-big-to-fail.  Under NIRP every gilt-edged enterprise would be too-state-owned-to-fail.

     Therefore, and admittedly the jump to our ultimate conclusion crosses bothersome unseeable terrain, in the NIRP universe, massive stock buybacks funded by staggering issues of new corporate debt will drive stock prices to unfathomable heights, and the bastards will find some way to screw us out of participating in it with them, leaving a tormented nation of people groveling for food at the feet of the trillionaires who used to be our business and political leaders in the soon-to-be cruelly forgotten alternate universe of today.

     Our condolences to you all.

Corporate Welfare in a NIRP World

     In saner times,  investment grade corporate bonds would carry a double digit coupon during the kind of unabashedly reckless deficit spending we're getting from the Administration blemishing Washington these days.  It made financial leverage expensive, at best.

     Then this thing called Zero Interest Rate Policy (ZIRP) came along, or, as we like to think of it here, Corporate Welfare.  ZIRP made financial leverage crazy.  No longer was it enough to sprinkle a blend of debt onto your balance sheet and juice up the bottom line, now corporate borrowings became kind of monetized, cost of capital calculations compelling suits to retire company stock with it.

     Math disadvantaged investors wondered why boards didn't use debt to grow revenues through capital investment, but the numbers screamed otherwise, plus "build it and they will come" was no longer viable in the ZIRP free money outsourced job economy anyway.

     And now one finds Negative Interest Rate Policy (NIRP) sitting on the doorstep.

     News about Exxon Mobil Corp's recent $12 billion bond issue hit us while we were pondering a possible future under that alternative universe.   Hit us like a ton of bricks, so maybe we figured out just what our Looney Tunes Fed is threatening America with.  NIRP is the one where you have to pay your bank a little something on the savings account every month instead of them paying you.  More than one country already has it and in Japan the central bank is buying common stocks for itself too, presumably for the day when banks have all our money and can just go ahead and retire on it.

     Way back when, interest rates on that Exxon Mobil issue would be, say, 10% to 15% .  On $12 billion that would come to $1.2 to $1.8 billion a year.  For simplicity's sake, lets call it $1.5 billion.  Over 20 years, a common maturity in those days, total interest would amount to $30 billion (without bothering ourselves with the present value thing as in the Looney Tunes Universe numbers don't seem to mean squat anyway).

     You see, in the Looney Tunes Universe of NIRP, the corporation pays nothing.  NOTHING.  N...O...T...H...I...N...G.  It's a free stuff for the freaking suits world.

     Meaning income investors get taken to the cleaners once again while the growth crowd has another gravy train to catch, albeit on those flagitious roller coaster tracks crime families install to victimize their prey with terrifying cons.

     Corporate Welfare in the Looney Tunes Universe certainly means that enlightened managers running our investments will continue to go out and borrow every last cent they can wrap their greedy little fingers around and in all probability actually accelerate those stock buyback programs.  There was a fine line between debt and equity in the sanest of times, and CFO's were always coming up with blends - like convertible preferred stock, for example.  In the zaniest of times, as we see it anyway, the Looney Tunes Fed will be granting companies a kind of perverse equity through NIRP. Bad equity, controlled by them as opposed to good equity owned by us.  Whatever, the cash that managers won't be using to pay interest on the debt that they'll still be issuing, though now with negative interest coupons attached, that is, interest bondholders will now pay them for the privilege of holding those bonds, will go straight into retiring shares.  Huge amounts of shares.

     Under ZIRP, which has gone on for the past 8 years or so, we're partway there already.