Say these five words out loud real fast: “Bifurcation, Backwardation, ZIRP, NIRP, Contango.”
These are actual words used by many traders, gurus, and Wall Street promoters.
They may sound funny or confusing but they serve several purposes. They:
- Reveal or describe certain market conditions.
- Act as “signals” for trading purposes.
- Are meant to confuse and/or impress you.
Funny thing is, most people (myself included) aren’t impressed with words that don’t make sense.
However, if you have a basic understanding of them, you’ll be better equipped as an investor and more likely to stay ahead of the crowd.
Think of it as learning how to “Connect the Dots” of a financial puzzle.
FED Chairman and ZIRP/NIRP
So, like learning any language, you need a good teacher or translator that makes it simple and easy to understand.
That’s where we come in.
Let’s start with ZIRP. It’s an acronym meaning “Zero Interest Rate Policy.”
ZIRP began after the 2008 meltdown to “supposedly” stimulate the economy.
However, the truth is ZIRP has caused critical damage to most of the nation’s Pension Plans. (They need interest rates higher in order for them to fund their plans for their pensioners.)
And ZIRP has also crippled most senior citizens who depend on the interest from their investments to live.
Cue up NIRP
NIRP stands for Negative Interest Rate Policy. And it means YOU PAY someone to hold your money.
Example: You buy a $100,000 bond with a negative yield of -0.25%. That means you pay $250 per year for the privilege of owning that bond.
Sounds crazy, doesn’t it.
And yet in Europe there is currently a major, major problem with NIRP.
They’re sitting on a portfolio of bonds with over $12 trillion in negative-yielding bonds.
And any uptick in interest rates will be devastating in so many ways.
It will not only cause major losses for the ECB but will, in effect, blow up their derivatives market.
But, for some reason, last week FED Chairman Powell hinted at the US moving towards negative rates.
Gee! What could possibly go wrong?
The upside to this is how it will have a positive effect on our stock market.
So, instead of freaking out about the bond market, learn how to take advantage of the move towards NIRP in our April newsletter (HERE).
And share this with a friend…they’ll thank YOU later.
We’re Not Just About Finance.
How the Rest of the World Reacts When They Hear About NIRP in the USA