- This is a party where you get paid to drink – Dagbladet.no

(Financial News /
Ole Asbjørn Ness): Pål Ringholm, credit analyst at Swedbank, a man who simply put is very well paid because he is much better than monkeys to throw dart at newspapers bond sides admit a mistake.

– That German government would give a return of 12.5 percent last year, the so I can not come.

Treasuries were high at the year’s start. It gave low interest rates. But then they rose even more, giving even lower interest rates.

Ever extraordinarily low interest rates, actually. It gives time for the really long lines.

– Interest rates have not been delivering on 5000 years, said credit analyst at Swedbank, Pål Ringholm, and puts forward a graph with interest back to code of Hammurabi time in Babylon .

In his law the maximum interest rate on seed 30 percent annually, while interest on silver was 20 percent. Interest is older than money.

And the law of one price works slowly: After thousands of years had tricksters who borrowed silver and bought seed to loans, provided that the maximum rate for both silver and seed was 20 percent.

Now interest rates negative. Translated into Hamurabis time he gets that lend 100 bushels of corn, 99 bushels back, at best.

What the heck is going on?

If you read the newspapers superficial, you must an impression that it is the central banks that control rates. 26 years after communism falitt, is thus interest rates controlled by central banks in their infinite wisdom sets interest rates. Wrong.

Just as one in the Soviet Union managed to put the right price on anything, without a market, capabilities one the fixed income market.

Instead of thinking that central banks decide interest rates, one can imagine that they run after and strive after poor ability, to make adaptations that lubricates the local economies as well as possible: More oil, cheaper for banks to borrow overnight, if it squeaks, and less oil, more expensive for banks to borrow overnight, if oil dripping in sacking flow.

In theory, the global interest rate the interest rate that makes savings = investment (and here we mean real interest rates, ie interest rates adjusted for inflation).

Great theory. The only problem is that no idea what the global real interest. You can not find it on Bloomberg, to say it that way. It is a concept, a concept not an observable size. But it does in its highest degree applicable. Adjusted for risk and inflation, can not a country securities lie too far away from this. Thus not Norwegian interest very Norwegian but controlled by foreign capital movements.

If Norwegian interest rates are higher than similar foreign securities must either krone strengthen or interest rates fall, as a result of all the foreign capital flowing to.

Two wise heads in Norges Bank considered itself in 2010 ruled that the “normal” Norwegian interest rates were 4.5 to 5 percent, but this could be falling.

It is the development have long been able to testify in the international capital markets. Except for emergencies, when liquidity dries up and interest rates go in the roof has been given direction: Down!

In expert note for Most Straight from autumn describes the three economics professors Steinar Holden, Thore Johnsen and Espen R. Moen developments. First they quote a study from the International Monetary Fund last year. Where it is concluded that the real interest rate is mainly determined by global conditions, and they estimated that the global real interest rates have fallen slightly below where it lay ten years ago, ie below 2 per cent (plus inflation, risk and time, so come one until nominal interest rates observed).

Three factors explain the fall
– Firstly saves population in emerging economies like crazy.
– Secondly, risk appetite declined and thus bonds preferred, then you get at least back principal.
– Thirdly, the recession and very low policy rates contributed.

The three professors also cites a study by the OECD early in 2014 where projections of economic developments until 2060 are presented.

OECD thought at the time that the long real interest rates would rise by 1.5 percentage points over the next four or five years. Cyclical stabilizes, and central bank policy rate should normalize. Then would high saving rates in China and other countries with older wave cut interest rates until 2030, while by 2030 would interest rates will rise as a result of pensioners use of their money and fewer saver.

For comparable countries like Norway estimates the future real interest rates to be between 1.8 per cent – 3.1 per cent up to 2020, and from 2020 to 2030 in the interval from 2.3 to 3.2 percent.

Low interest rates, low interest rates and low interest rates.

We can hear the echo where we sit at Aker Brygge. Among the steel and glass and fjord we hear the resonance from the international capital markets. New York, London and Tokyo. Exchanges located at record levels. On oil sensitive Oslo Stock Exchange price of oil has put a damper on the party, but in the world nor the world’s central bankers more punch in the bowl every time it is getting empty.

The explanation for the rise is simple, we believe Ringholm.

– When you share a number that is almost zero, what do you get when, almost shouting the enthusiastic northerner and he answers the question himself: – A very large numbers!

Thus, house prices, share pricing and bond values ​​explained. Only you discounts down a cash flow with a sufficiently low interest rate, it is high. Do you have a perpetual cash flow of 10,000 per year, and interest rates is estimated to be one per thousand, is the present value of paltry 10,000 million 10 million (10,000 / 0,001).

– The value is rocketing says Ringholm. Hallelujah. Fest. Adjusted for inflation, it is free to borrow money. Jappe time is risen from the dead: Negative real interest rates are here again.

This is not a party with lots of drink tickets, this is a party where you get paid to drink.

And it is a party which many economists believe will last long. The most optimistic believe that interest rates will remain low for decades. Low growth and aging population is the explanation.

– It is a touching agreement says Ringholm, and with no small Malise he adds: – It is always so towards the end of one cycle.

Well think Ringholm that the next interest rate movement is downwards and well think he current low policy rate will probably last another two years, but this is the new normal, he has no faith in.

– If the interest rate low for ten years?

– I have no faith in. It does not happen. Look, almost crying Pål Ringholm.

In his hand he holds the proof. The smoking gun. Three numbers. The Spanish, Italian and US rates on one-year government bonds. The Spanish and Italian interest rates are lower than in the US.

– Who in their right mind would rather lend money to Spaniards and Italians than Americans, and get lower paid?

– Exactly. Interest rates are manipulated! The ECB has started its support purchases, it gives bizarre manifestations like this.

What does it mean?

The money has piled up in banks. Low interest rates are a way to stimulate the economy. It’s tougher to be rentier. Should you get a return, you must move away from the fixed income market.

The downside: – People are still afraid. The stock market is rocketing, not because they expect high future earnings, but because the denominator in the discount rate is low.

Thus parts Ringholm roughly today’s investors into two groups. The one group is still shaky, they want to protect the values ​​as much as possible. They put their money in bonds. One then gets the least principal back, nominally. The others will have returns and goes in the stock market or real estate market. Where valuations skyrocket thanks to the low interest rates.

How long will the fun last? Two years to think Ringholm. But what about those who believe in low interest rates in a decade to?

– I have no faith, says Ringholm. During 5000 years has that never said interest rates have been lower.

On the basis of what draws Ringholm two conclusions:
– The first: – The outcome is skewed. Yields can not go much lower. But they can go very much higher. This applies even if I think that the next movement is downward, says Ringholm.
– Second: For low interest long will cause bubbles when they uavendelig one day burst, resulting in higher interest rates or interest rates must rise before the bubbles evolve.

– Either rates will have to rise. Lunch is not free, it taught Milton Friedman us. And certainly not money.

When is punsjbollen empty? When does the interest to the sky?

– The movement will always surprising, and it will come faster than consensus, says Ringholm.

He sees three factors that could trigger this .

– As always, China the great risk of Norway. I still believe that there is tremendous risk. The Norwegian housing market will probably be a bad investment, but if you want to make an even worse one, you can put your money in the Chinese housing market. In China it can quickly get a violent crack. It will reverberate throughout the world, and particularly in Norway.

Farewell to China as the world’s great saves.

– The growth and inflation could come back faster than had been expected. The central banks are doing now, no one has ever done before. No one knows just how this will end. Besides demographics in the process of turning. We stand at a turning point, where the aging population will begin to draw on the equity they have accumulated. It will probably coincide with a bottom.

Ola Nordmann applies it to follow the outcome with excitement.

Never before has Norwegians had higher household debt relative to income. Never before have Norwegian municipalities have been more indebted. If interest rates slams weather, both municipalities and citizens to tighten their belts.

Meanwhile, shares, bonds and housing fall in value. Pieces on a bigger number, you get a smaller number.

consolation is that higher interest rates will make pension easier to carry. Or as Ringholm quit.

– There is no problem to pay your debt if interest rates remain low for a long, and you do not have to pay installments. When you grow out of it. This applies both to households, municipalities and countries. The downside is that when you have a lot of debt, endures one less bad luck.

– When beginning Ola Nordmann scream in pure pain Ringholm?

– I do not know. But I know that if we can not tolerate an interest rate increase, so is the time to fix the interest come. It is trivial to pay for an insurance policy that will be very useful whether you are a homeowner or municipality.