We’re All Hedge Funds Now, Part 3: Even The Swiss Are Gambling

We’re All Hedge Funds Now, Part 4: Insurance Companies Go For “Growth”<< Read: We’re All Hedge Funds Now – Part I

<<Read: We’re All Hedge Funds Now, Part 2: Tech Startups And Nigerian Bonds

Let’s start with the latest on the global descent into negative interest rates:

Fed would consider negative rates if economy soured – Yellen

(Reuters) – The Federal Reserve would consider pushing interest rates below zero if the U.S. economy took a serious turn for the worse, Fed Chair Janet Yellen said on Wednesday.

“Potentially anything – including negative interest rates – would be on the table. But we would have to study carefully how they would work here in the U.S. context,” Yellen told a House of Representatives committee.

This would happen if the economy were to “deteriorate in a significant way,” she said, adding that she believed negative rates “would have some at least modest favorable effect on banks’ incentives to lend.”

Janet Yellen is now firmly in the central banking “whatever it takes” mainstream. And since — if the ongoing contraction in manufacturing is any indication — the economy is indeed “deteriorating in a significant way,” the US is now likely to join Europe in pushing rates down (or allowing rates to fall) to negative territory.

But already, the impact of zero and near-zero rates has been seismic. Virtually every class of financial entity, from retiree to central bank has, driven by a need for yield, begun taking the kinds of chances that used to be associated with gambling addiction or drug abuse. See the previous two entries in this series: We’re All Hedge Funds Now and We’re All Hedge Funds Now, Part 2: Tech Startups And Nigerian Bonds.

The latest bit of surreal news on this front concerns the Swiss National Bank, once upon a time the virtual definition of rock-solid risk aversion, and its growing and highly volatile — get this — equity portfolio: