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

Tyler Durden's picture

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.

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

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.

* * *

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.

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DownWithYogaPants's picture

Von Firstenberg

 

............oh yeah....this will end well.  NOT.

Dr. Spin's picture

Yep, the big suck is on.  We are 37 points on the S&P from the edge of the cliff.

Gird your loins bitches,,,

;-D  

N0TaREALmerican's picture
N0TaREALmerican (not verified) Jun 23, 2016 3:28 PM

 

Didn't Mario Dracula say this was going to happen?  

MFL8240's picture

This is a circus, anyway you look at it!

moonman's picture

Excellent so then negative rates should only be applied to savers with over $1,000,000 in the bank.

Of course here in the good old USA we will have to adjust that to $100 to be fair.

the grateful unemployed's picture

the ninety point nine percent and the one tenth of a percent. mission accomplished

Atomizer's picture

Pushing fake devaluation money to buy NIRP devaluation money. Go for it lemmings. 

Vageling's picture

Oh that's what it's about. No matter how I look at it with your explanation. It's high risk and bound to bite you in the ass. Sjees who even bothers with NIRP. Why reward failing policy? 

Condition 1SQ's picture

Well this is how the government works.  If it can't ban cash, it'll simply make having cash a losing proposition.  All hail our benevolent overlords.

Vageling's picture

Wait... People lost their minds? NIRP... That's losing money asshats. What am I not being told? There's some catch...

Tinky's picture

Hogs to slaughter...

silverer's picture

NIRP
.
Nonsensical Incantations Reversing Progress

Time to yodel.

rejected's picture

The very definition of capital, savings.

The new central bank definition, debt. Spend every penny you have or let someone else spend / control it. Like everything else NIRP will eventually apply to everyone.

Then when you reach retirement and the stocks have crashed they'll ask you

"Why didn't you save?"

kanselier's picture

Logic 1o1:
The fact that more ordanary people are pushed into stocks is NOT a good sign for stocks!

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jun 23, 2016 3:50 PM

They must have all started buying stocks today at 3:40PM.  Now it all makes sense

adanata's picture

 

Don't waste time building a gallows... street lamps should suffice.

truthalwayswinsout's picture

You will also save the environment as well by not having to kill all those trees.

redc1c4's picture

just gut shoot them with a 22 short, and leave them for the roving packs of starving dogs...

and the rats.

ajax's picture

 

Here in CH the money is flooding into 'real estate'. Gallows? No Sir! All the beautiful old neighbourhoods are being demolished (along with all the beautiful old trees and architecture) to build lego-land crap condos which are not for rent and too expensive to buy for the average CH family. What does that tell you?

redc1c4's picture

i thought the idea of NIRP was to get people to *spend* money...

buying stocks isn't spending.

or did i missunderstand the alleged plan?

Vageling's picture

Look further ahead. Eventually commercial banks have to go NIRP too. As fools believe what's on their balance is theirs. Banks come in and introduce NIRP to the serfs. Blame it on the central banks and you should have spended. So we correct that by NIRP. Works good and good for economy they'll say. See... It worked on higher level. All a scam. Since NIRP hasn't affected the serfs YET. 

xerxiesx's picture

No NIRP is to get people to buy stawks, which raises the markets, which creates the virtuous cycle wealth effect which then gets people to spend monies.

silverserfer's picture

Sheep must first be guided throught narrow channels before they are slaughtered.  

 

Jump the fence and run little sheep!!!    Response  blank stare,  Nahhhhhhhhhh!

LawsofPhysics's picture

Wait what? Can I go short now?

RamzaBehoulve's picture

You need to understand Switzerland is very special before you can understand why such things are possible over here.

augustusgloop's picture

I downloaded the report:  There is not a single instance of of the term "gold." 

Omen IV's picture

money is gooing to gold not stocks - i dont bleieve nayone with serious assets doesnt see an extended market for stocks

 

either it is RE or gold or cash

mary mary's picture

Rich Swiss are buying stocks - of gold mining companies.

Handful of Dust's picture

The next market crash is going to be a Doozy!

silverer's picture

Now we all have to ask, what's in the water in Switzerland?

Bunga Bunga's picture

"out of cash" ... but cash does not disappear, just someone else ends up with the hot potatos in his hands.

dogbert8's picture

So? More of the same; i.e., wealthy people buying stocks to maintain or increase wealth (which is fine, mind you) and the rest of humanity stuck with savings that aren't earning s**t! And THIS is what they call "working?"

Skiprrrdog's picture

***BREAKING NEWS***
Adolph Hitler, through a medium from beyond the grave, said in a press release today that he "vouches for the integrity of the FBI probe into Hyena Rodent Clinton".

Film at eleven.

FIAT CON's picture

I guess the Swisse have forgotten what they were once famous for!

 Gold!

 They should be buying gold.