This QE is getting Personal

Recent suggestions in Japan that public and private pensions disavow themselves of their JGB holdings in exchange for more risky assets, imply that the Government is possibly beginning to suggest more firmly that the private sector take a more active role in the reflationary process. While our Central Bank has preferred to be more subtle, perhaps this subtlety is about to end as evidenced by comments from a commercial banker when asked about the potential for The Fed to start charging banks for excess reserves. The banker comments about charging interest are as follows ” it would turn it into negative revenue-banks would be disincentivised to take deposits and potentially charge for them”. While the actions of Central Banks over the past several years might have only slightly resembled command and control, an environment whereby Central Banks are expressly encouraging the extraction of rent from those not predisposed to risk taking is a whole new ball game. Our suggestion that investors begin to allocate a greater portion of net worth into hard assets was derived from our belief in a nascent secular shift away from paper assets and into hard assets. However, recent Central Bank actions such as these might imply that investors should start thinking about such shifts as protection against Central Bank confiscation.

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