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Real Negativity

MMPI Investment Products

A nominal interest rate is the price that it says on the tin – whereas a real interest rate is the price suitably adjusted for inflation. Throughout the western world we are experiencing very unique circumstances where both nominal and real interest rates are negative. This is having dire consequences for institutional investors and personal savers.Negativity

Businesses that generate cash like insurance companies and pension funds rely on so-called fixed income investment products like government bonds and bank deposits. The nominal rates of return these companies are achieving are currently negative – that means they are sure to get back less that they invested! If this continues unchecked their business models will lie in ruins. Nominal negative interest rates are currently haunting other businesses too – but have yet to impact on most retail consumers.

The paltry nominal returns that retail consumers are achieving are causing hardship for those relying on deposit income – but imagine the reaction from consumers if nominal interest rates were to turn negative!

Interest returns that are adjusted for inflation (real interest rates) are already negative and have been for some time. This exacerbates the difficulties for all those relying on positive returns. Retail consumers complain about the meagre interest rate appearing on their bank statements but few fully grasp that, after adjusting for inflation, their savings are disappearing.      

MMPI was quick to see these developments coming but we can’t be sure how they will ultimately unfold or exactly how consumers will respond. From this juncture it appears that interest rates may finally be beginning to turn. The US Federal Reserve has formally started the process of raising rates to more normal levels – and is likely to continue with an announcement next week. The European Central Bank and others are a long way behind but they will surely follow suit in time.

MMPI is delighted to say that it is continuing to do its bit for consumers in the ongoing struggle to avoid the real negativity trap. So far this year eight (8) of MMPI’s investment products in its Escalator Series have matured ahead of schedule. These products are created specifically to side-step the real negativity trap and provide consumers with as fighting chance of beating inflation. In fact, the eight maturities achieved much more than that. They beat inflation by some distance and accomplished this without taking on excessive risk.

For example, the MMPI Escalator Plan Series 26A, that matured yesterday 18 months into its 5-year term, produced a return of 20.25%. Normally to achieve this level of performance consumers would be required to take on an unacceptable level of risk to their capital. But Series 26A provided 20.25% interest after 18 months by delivering 100% capital safety in all circumstances unless the underlying investment fell by 40% or more at maturity.

The eight investments in the Escalator Series that have matured this year have produced an average return of 10.87% after 13 months. MMPI classifies bank deposits as a 2 on its 1-7 risk scale. The Escalator Series scores between 3.0 and 4.0. If you’re interested in beating real negativity the MMPI Escalator Series may well offer you a real solution.

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