Where To Invest When Rates Go Negative

Negative interest rate policies (NIRP) are being adopted by central banks around the world. And it’s quickly becoming the “new abnormal.”

The move to NIRP shows how desperate policy makers are becoming in their quest to stimulate economic growth. But to date, NIRP has produced few tangible benefits.

The only “stimulus” negative rates have produced so far in Japan is to the safe industry. Sales of safes at hardware stores have doubled, and safes have disappeared off many store shelves.

Obviously, the Japanese aren’t planning to pay banks for the privilege of holding their money. Instead, they’ll store cash in safes at their residences.

Investing in the “New Abnormal”

But as I said before, NIRP is the “new abnormal.” I suspect the “mad scientists” at central banks will continue their experimentation on global financial markets and economies. Already, over $7 trillion of sovereign bonds globally trade at negative rates. In other words, at a guaranteed loss if held to maturity.

Eventually, I expect even the Federal Reserve will go negative.

How should one invest in this new environment while staying relatively safe?

It’s a tough call, even for me, with my 30 years of experience. This is new to all of us.

But here though are some places I think will benefit as rates go lower:

~Government Bonds

At the top of the list is government bonds. As rates go lower and lower, the value of existing sovereign bonds will rise. The best bet right now is U.S. Treasuries. The U.S. 10-year is still yielding 1.75%. That looks astronomical when compared to negative government bond yields in Europe and Japan.

A good proxy for U.S. Treasuries is the iShares 20+ Year Treasury Bond ETF (TLT). This ETF should continue to appreciate if long rates in the United States sink to what I expect to be about 1% in 2016.

~Real Estate Stocks

A big winner should be real estate stocks. Just look at Japan.