World’s Second Largest Reinsurer Buys Gold, Hoards Cash To Counter Negative Interest Rates

Tyler Durden's picture

The world’s second-largest reinsurer, German Munich Re which is roughly twice the size of Berkshire Hathaway Re, is boosting its gold reserves and buying gold in the face of the punishing negative interest rates from the European Central Bank, it announced today.

As caught by Mark O'Byrne at GoldCore and reported by Thomson Reuters this afternoon, the world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.

Munich Re has held gold in its coffers for some time and recently added a cash sum in the two-digit million euros, Chief Executive Nikolaus von Bomhard told a news conference.

Nikolaus von Bomhard in Munich, on March 16, AFP via Getty Images

 

“We are just trying it out, but you can see how serious the situation is,” von Bomhard said.

The ECB last week cut its main interest rate to zero and dropped the rate on its deposit facility to -0.4 percent from -0.3 percent, increasing the amount banks are charged to deposit funds with the central bank.

Munich Re is one of the largest reinsurance companies in the world - It oversees €231 billion in investments. A small 3% allocation to gold would equate to buying gold worth €8.19 billion. At the current spot price of €1,130 per ounce that would equate to 7.2 million ounces or 225.4 tonnes of gold bullion

The news is interesting and we believe that other institutions will follow in their footsteps and diversify into gold in order to protect themselves from negative yields. We have not heard of any other non central bank institutions diversifying into gold but it stands to reason that a small percentage will follow in Munich Res footsteps.

* * *

It isn''t just gold: the German company confirms that when rates turn negative enough, physical cash will be increasingly more valuable.

As Bloomberg reports, the German company will store at least 10 million euros ($11 million) in two currencies so it won’t have to pay for the right to access the money at short notice, von Bomhard said at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said.

Institutional investors including insurers, savings banks and pension funds are debating whether it may be worth bearing the insurance and logistics costs of holding physical cash as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The ECB last week cut the rate on its deposit facility, which banks use to park excess funds, to minus 0.4 percent.

“This may well become a mass phenomenon once interest rates are low enough -- the only question will be where that exact point is,” said Christoph Kaserer, a professor of finance at the Technische Universitaet in Munich. “For large institutions, that may be the case sooner rather than later. The ECB will react with countermeasures, such as limiting cash.”

As Bloomberg adds, Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy.

Munich Re, which oversees a total of 231 billion euros in investments, wants to test how practical it would be to store banknotes, having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank AG Chief Executive Officer John Cryan has predicted the disappearance of physical cash within a decade.

 

“This shows the difficulties that the ECB is facing in its efforts to stimulate the real economy,” said Andreas Oehler, a professor of finance at Bamberg University in Bavaria. “Charging negative rates on overnight liquidity doesn’t stimulate longer-term lending. All it does is make companies’ and institutions’ payment transactions more expensive.”

Incidentally, once the Fed's infatuation with playing central planning doctor fizzles as the economy relapses into an accelerating downward spiral, negative rates are coming to the US next, as such the real-time experiments of how to evade a repressive monetary regime such as those conducted by the Munich Re CEO will be particularly useful to those who want to protect their assets once NIRP crosses the Atlantic.

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American Psycho's picture

old shinny relic, said no one on ZH

Dame Ednas Possum's picture

Huh?!?

Anyway... Gold, cash, dirt, beans, water & lead. Get some.

theliberalliberal's picture

My dad just sold his multigenerational family dirt much to my objection.  Permanent stream/dam. 350km from Perth.   Crazy lady renting out the house said ghosts of my grand father and step grand father are still there waiting for Nan to die.  They tell her to shut up when she does the vacuum cleaning.

And he keeps the shit-hole investment in Rockingham.

:(

At least we have convinved him not to put it all into Ponzi Scheme #1....er I mean superannuation.   

SuperRay's picture

Gee willakers, maybe I should get me some o' that gold stuff

Pladizow's picture

What's the biggest mattress on the market?

0.0004% in gold - non event - Meh!

Beatscape's picture

Negative interest rates are a major gamble by the CBs. No rational, profit seeking entity would willing buy a financial instrument where they are guaranteed to lose money.

It's essentially a mind control gambit to test the waters and gauge how much domination the CBs truly have over financial markets.  As the only sanctified money magicians in the world, they are truly drunk with power and are seeing how far they can fool and hypnotize people into doing whatever they propose.  As interest rates hit zero and quantitative easing is creating too many market dislocations, it's a monetary experiment that defies logic.  Yet, the money wizards think that they make all the rules -- a case of financial meglomania. Can they induce their subordinate bank members to go along with the nonsensical arrangement?  Sure, their subordinate bank members have no choice.  The CBs make the rules for them.  But independent financial entities aren't under their governance.

The CBs are banking on (pun intented) the behavioral instinct that if your neighbor and cohorts all do something together, regardless of how outlandish it is, it's actually okay -- the herd instinct.  Can they pull if off?  Now even the main stream media is questioning the omnipotence of the CBs due to the introduction of negative interest rates.  I think this gambit is their Waterloo. It has already blown up in the face of the BoJ.  Yet, the ECB is all in and is convinced that the gambit of negative interest rates is a successful monetary tool.  However, German Munich Re doesn't share this sentiment. German Munich Re is a rationale player and is not seduced or hypnotized by the ECB.  They realize when the emporer wears no clothes and see the man behind the curtain for who he really is.

38BWD22's picture

 

 

theliberalliberal

Ouch!  That hurts.  Permanent stream and a pond.  I once owned a small property in rural Texas that had a pond, sold it long ago (very far from where I live).

Squid-puppets a-go-go's picture

good thing about Australia is that although super is compulsory, you can allocate physical gold/silv and store independent of the banking system

Curiously_Crazy's picture

Only in a SMSF though correct?

I'm with Australian Super and they've done good by me in the past (let me access my super at age 30 when I needed it with no real jumping through hoops) so I've stuck with em.

They do have a "for all intents and purposes self managed fund" but I think it only includes equities, term deposits and property..  I'm 100% term deposit at the moment and can move it to other options at other time, but in the self managed one I'm locked in for 5 (or whatever) years.

 

Edit to add: With another 30 odd years before retirement I know I probably won't see any of it anyway, so it's all monopoly money to me at this point. Be great if you could fill me in on the gold option (outside the banks). Cheers.

Squid-puppets a-go-go's picture

yup, only thru an SMSF

i was with care super who had one of those 'effectively a SMSF'

its gold options were only paper gold. It did not allow any investment in junior minors. Thru Maquarie bank so if macquarie went under, super dies - and maq were a bit wobbly recently

thats why i went to a SMSF.   (Esuper - admin fees are low but little by way of advice / support. if you're prepared to do your own homework they are economical and flexible in investment options. if you're nervous about doing your homework, maybe not the best option)

bluskyes's picture

In Quebec they have a saying:

My great great grandfather cleared the land
my great grandfather worked the land
my grandfather farmed the land
my father sold the land
I am trying to buy the land.

American Psycho's picture

I guess the, "said no one on Zero Hedge" was not obvious enough sarcasm.  I'll try harder next time, or not.

Dame Ednas Possum's picture

please let's not confuse sarcasm and poor, cryptic wording...

Maplehood's picture

Remember, he who panics first...

theliberalliberal's picture

<< panics best

<< is laughed at.

theliberalliberal's picture

Thank God for Old Swedes

asteroids's picture

When NIRP comes to your country, you now know what to do.

junction's picture

Most "gold bugs" are hoarding their gold secretly.

besnook's picture

nirp is the marker for "this currency is worthless. we have to pay to give it away with a discount because no one wants to pay face value for it". nirp means gold and silver are actually collecting interest so gold and silver is a good trade now for both reasons.

FrankieGoesToHollywood's picture

Thats a lot of mattresses considering the 500EU note is gone.

 

"so it won’t have to pay for the right to access the money at short notice" .....soooo they don't actually possess the cash???

Anopheles's picture

They are only holding 10 million in cash.   I don't expect their gold holdings to be very much either.    They want investments that provide a return.   

Even if they had a hundred million in gold,  that's peanuts for a €231 billion company.   

The author's figure of 3%?  That's just his own wet dream.   

 

And that 10 million in cash?  It won't even cover their payroll for ONE DAY. 

Squid-puppets a-go-go's picture

ah, durr  " They want investments that provide a return. "  this is the whole point. At neg interest rates there is no effective return. geddit?

Uranium Mountain's picture

Will China, Russia, India or any other nations sell back their gold to the idiot western countries that sold out?  Where will all these "Institutions" get their gold from in the multiple tons?  When all the fat men will want their gold back, I guess they will steal it from their citizens if possible.  

Squid-puppets a-go-go's picture

yer - the 3% allocation tyler refers to?  Thats the whole amount of physical (apparently) on the comex in both the registered AND elligible categories

and thats just one insurance company, from one country

the_narrator's picture

Jim willie contends that the gold standard will return when bonds are not accepted for trade payment settlement.  I always wondered what would cause people to not accept gov bonds.  I see now that NIRP might actually lead to that.

Vint Slugs's picture

Bullshit.  He has read Antal E. Fekete.

38BWD22's picture

 

 

Dr. Antal Fekete is a master, the first one I know of to demonstrate why lowering interest rates destroys capital.

Squid-puppets a-go-go's picture

lol 'first one to demonstrate' - like its a complex matter?

nothing could be more obvious. Negative rates are the DIRECT undiluted no intermediary destruction of capital, no less. I have no idea why this wasnt obvious to everyone from the outset. 

carneades_jazz_hands's picture

Now that Warren Buffet has been getting out, they're getting into Gold.

Interesting.

SuperRay's picture

Don't believe a word that coked up motherfucker says

sidiji's picture

where did all these communist central planners come from?  i thought west won the fucking cold war.

at this rate we'll have bread lines next

Teknopagan's picture

The West never won the war, it just got fooled into murdering a good part of its kindred.

eishund's picture

indeed. the west is now f%^ed. totally infiltrated by the zionist bolsheviks. it's a matter of fact.

Dragon HAwk's picture

look close his eyes seem pretty blood shot,  up late worrying me thinks.

tdogg's picture

When it's serious you have to lie.

And ..... buy some gold.

 

Tdogg out

 

tarabel's picture

 

 

How far off can the end be when making 0% on your investments represents a substantial profit?

 

I been thinkin lately of what I'm missing in the city

And I'm not missin a thing, watching the full moon crossing the range

Ridin the storm out. 

Curiously_Crazy's picture

Just be thankful you had the cash to get out when you did.

Those of us plebs who are still the working poor will never be able to afford acreage with running water out in the sticks. At least that's one thing still cheap in the USA.

Even a caravan would be a dream for me, but stuck renting a little 1 bedroom unit at $300 a week with my only outside area apart from the balcony being a car bay means I don't even have anywhere to put that.

I have plans though.

Herodotus's picture

I recall reading several years ago that the Northwestern Mutual Insurance Company was holding a significant amount of gold in its headquarters vaults in Milwaukee. Don't know if this is still the case.

theyjustcantstop's picture

does he have any 500 euro bills in his vault?

 

The Duke of New York A No.1's picture

Dyaaaa ... you can see how serious the situation is,” von Bomhard said.

northern vigor's picture

This sums up everything that the gold haters do not point out when mocking the gold bugs....the amount of paper currency floating around and the lack of bullion.

The German insurance company could take  3% of its assets...9 billion euros and buy 225 tonnes of  gold....But where are they going to get 225 tonnes of gold? It is only 3% of one company...There's hundreds of corporations that may be thinking like this, but where will they get the gold? It just shows that there are too many dollars and euros out there, chasing scarse tangible assets.