Investments to Fight Financial Repression
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 12 August 2020
⏱️ 24 minutes
🧾️ Download transcript
Summary
What are some investments that can generate a cash yield greater than inflation in an era when central bank policies keep government bond yields lower than the inflation rate.
Topics covered include:
- How low are interest rates around the world
- What have inflation rates been and what causes inflation and deflation
- What is financial repression
- Why are central banks keeping short-term interest rates so low
- What determines interest rates
- How I-bonds work
- Why active bond mutual funds can be helpful
- The pros and cons of preferred stock
- How to harvest the volatility risk premium
- How dividend-paying stocks can help fight financial repression
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money. How it works, how to invest it and how to live without worrying about it. |
| 0:09.5 | I'm your host David Stein. Today is episode 309, its title. |
| 0:14.0 | Investments to Fight Financial Repression. |
| 0:18.0 | A couple of weeks ago on August 4th, the U.ure Treasury bond hit an all-time low yield of 0.52%. |
| 0:31.3 | It's a little higher than that now about 0.64 percent. |
| 0:35.0 | Yet if we look at an equal weighted composite of 10-year government bonds that includes Canada, |
| 0:41.0 | the Eurozone, Japan, Switzerland, the UK, and the US, that composite interest rate is 0.3%. |
| 0:50.0 | If we include corporate bonds and mortgage-backed securities, the global aggregate bond |
| 0:55.7 | yield is 0.8 percent, an all-time low. |
| 1:01.8 | Now those are nominal yields that supposedly take into account the potential inflation, |
| 1:08.0 | but those rates are lower than what inflation has been over the past few years. |
| 1:14.8 | Treasury inflation protection securities have a negative yield. |
| 1:19.3 | That's the real yield. |
| 1:21.4 | The tenure tip is yielding negative 1%. Global Central Banks have set their |
| 1:28.6 | interest rates at all-time low. A composite of global central banks, the average short-term policy rate is 1.35%. |
| 1:39.2 | That's down from 2.4% in July 2019. |
| 1:44.0 | Most developed countries have set their policy rate at zero. |
| 1:49.4 | As investors, if we are not able to generate a return that is greater than inflation, then our investments |
| 1:58.4 | lose purchasing power over time. |
| 2:01.8 | If Central Banks are implementing policies to keep interest rates low, |
| 2:07.7 | policies that benefit debtors, borrowers because they can borrow cheap, at the expense of savers that aren't able to earn even |
| 2:16.4 | the rate of inflation on their savings. |
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