Lowest interest rates in 5000 years

You may think I’m joking but no, I’m not and this is not a typo but is what a recent Bank of America Merrill Lynch report was saying:  thanks to the global financial crisis, relentless interest rate cuts, as well as unrestricted asset buying by the central banks, current interest rates have been pushed down to their lowest level… in 5,000 years!  I don’t know how they calculated the interest rates thousand years ago but regardless, you need to get the point that it is really unprecedented with what’s going on around the globe in the financial world that makes interest rates so low that no one has ever seen.  Here is just a brief summary of what we are facing:

• One third of all government bonds worldwide, which is over $13 trillion, are traded at valuations with negative rates. In other words, bondholders are holding those bonds which will get less than their original capital back at maturity.
• It is estimated that in about 25% of the global economy over half a billion people, they are living in the negative rates world.
• The worst areas hit by negative rates are Europe and Japan. You probably already heard that nearly 20% of Italian bank loans are not performing, meaning losing money.  In Japan, over 90% of government bonds are yielding 0% or less.

So what will come with such a widespread global negative rate phenomenon? You can bet that banks in general will really suffer more and more as bank profits are so dependent on the "spread" they earn between interest paid to depositors and interest charged on loans.  The extremely low and even low interest rates have made bank powerless in making money.  Many European banks have already implemented negative interest rates for their business customers and now we are seeing more banks are even going after their residential customers to charge them for depositing money in their banks.  You may think we live in the US are fortunate and no need to worry about the devastating problems other countries are experiencing. Don’t be happy too fast! While Yellen and the Fed have kept brainwashing you about the coming rate hike, the chance of any meaningful rate increase is near zero. On the contrary, rate cuts or even going down to negative rates have a better probability down the road, believe or not. Be prepared for a looming financial crisis bigger than what we have seen in 2008. It may sound like a crying-wolf at the moment, but the crisis may hit you more devastatingly than anyone can imagine, if unprepared. Here are a few things one may do now when it is not too late:

• Buying gold/silver or their stocks as much as you can, especially when they correct. It appears we are likely seeing a meaningful correction as I’m writing. Precious metals will behave like a last man standing in a financial crisis, especially in the environment of negative interest rates.
• Shorting bank stocks, especially those that are deeply in the mud even right now. I can think about 2: the Deutsche bank (DB) and Citi Group (C). You can simply buy and hold their LEAP (those matured 1-2 years after) out of money put options in 2018, for example. The cost is very low but you may see several times return of your money when they drop like a stone during a crisis. Believe me, they will be among the first ones to plunge if a banking crisis hits.

You may even short the whole financial sector by buying LEAP put options on the Financial Select Sector SPDR ETF (XLF). Again a few hundred or thousand dollars for its out of the money puts may bring you back several times your money when US banks implode, following their European brothers. I firmly believe this is just a matter of time, not if but when.