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In Surprising Development NIRP Starts To Work, Pushing Rich Swiss Savers Out Of Cash Into Stocks

One of the rising laments against NIRP is that far from forcing savers to shift from cash and buy risky (or less risky) assets, it has done the opposite. Intuitively this makes sense: savers expecting a return on the cash they have saved over the years are forced to save even more in a world of ZIRP or NIRP, as instead of living off the interest, they have to build up even more prinicpal.

Gross Savings Rates

We first showed this empirically last October, when BofA found that instead of hurting saving, NIRP was actually encouraging it.

In Surprising Development NIRP Starts To Work, Pushing Rich Swiss Savers Out Of Cash Into Stocks

One of the rising laments against NIRP is that far from forcing savers to shift from cash and buy risky (or less risky) assets, it has done the opposite. Intuitively this makes sense: savers expecting a return on the cash they have saved over the years are forced to save even more in a world of ZIRP or NIRP, as instead of living off the interest, they have to build up even more prinicpal. - Click to enlarge

 

 

Jeff Gundlach confirmed as much last week when he said that “when you go to negative interest rates, you do not stimulate consumption, you necessitate saving. You cannot fight deflation with deflation. Negative interest rates are the definition of deflation. You cannot put out a fire by pouring gasoline on it.”

However, just as NIRP was becoming the most hated central bank policy ever implemented and even the Fed was admitting that there are “concerns” with negative rates, something unexpected happened. It may have started to work. According to a report by Capgemini, wealthy bank clients and other high net worth individuals (with a net worth >$1 million) are diverting more of their cash to investments such as hedge funds and private equity to counter negative interest rates.

Capgemini’s annual World Wealth Report found that high-net-worth individuals in Switzerland kept 21.4% of their assets in cash and cash equivalents in the first quarter of 2016, down a substantial 25% from 28.2% a year earlier, Reuters reported. “Because clients are not receiving any interest, they’re looking for alternative investment opportunities,” said Tobias Wolf, senior manager at Capgemini Consulting.

Which, of course, was the central bankers’ plan all along. However, what makes this more interesting, is that virtually none of the negative rates were actually passed on to savers.

As a reminder, following the ECB, the SNB The Swiss National Bank pushed interest rates to record lows since January 2015 in an effort to weaken the Swiss franc. It now charges banks 0.75% on some deposits. However, with the exception of Alternative Bank Switzerland, Swiss lenders have not yet passed on negative rates to retail customers, but some have introduced deposit charges for cash-heavy corporate, private and institutional clients.

Perhaps it is the threat that negative rates are coming: Switzerland’s biggest bank, UBS warned last month that it could pass on negative rates to wealthy private customers or add new service fees to safeguard profitability and capital returns.

Whatever the reason, the fact that NIRP has finally succeeded in forcing savers – even if it is a very selected subset – out of cash and into risky assets, just as it was meant to, may breathe new life into this policy which has, ironically, been panned by virtually the entire economist cadre. What would be truly embarrassing for central bankers is if two years after it was first implemented, NIRP was indeed starting to force savers to swap their savings for risky assets, just as NIRP is widely seen as a failure. And if so, would it breathe renewed life into NIRP just as central bankers, scrambling to stimulate inflation and even considering helicopter money, have given up on negative rates, much to the fury of Deutsche Bank which has been raging against this for the past few months.

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HNWI Population, 2010-2015

Additionally, the Capgemini study also found that, for the first time, the Asia Pacific region had more high-net-worth individuals than North America.  Asia Pacific, which many private banks are counting on to drive growth, had 5.1 million such individuals in 2015, compared with 4.8 million in North America.

And in the most disturbing news for the world’s wealthiest, Capgemini also found that the growth in the number of high-net-worth individuals and their wealth slowed to 4.9 percent and 4 percent respectively, well off the pace of previous years. Perhaps central banks should be made aware and fix this inequity asap.

HNWI Population, 2010-2015

One of the rising laments against NIRP is that far from forcing savers to shift from cash and buy risky (or less risky) assets, it has done the opposite. Intuitively this makes sense: savers expecting a return on the cash they have saved over the years are forced to save even more in a world of ZIRP or NIRP, as instead of living off the interest, they have to build up even more prinicpal. - Click to enlarge

 

 

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Tyler Durden
ZeroHedges' Tyler Durden is the hero of Fight Club, the 1999 movie based on Chuck Palahniuk's novel that reflected Chuck's experience in the Cacophony Society Quote: "Goddamn it, an entire generation pumping gas, waiting tables, slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off." --> see more about Tyler on snbchf
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