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 A global glut of cheap money is prompting investors to take
unprecedented risks in order to earn returns. From the United States
to the 19-country euro zone, central banks have lowered interest
rates to zero since the financial crisis started in 2007 and still
haven't been able to raise them back.
Nearly a decade of free money helped these countries through the
worst of the crisis, but at a heavy cost for savers, sapping
earnings from traditional investments such as bonds and pushing many
to look at riskier, unconventional alternatives.
Interest in hedge funds, property, paintings and wine has risen
sharply.
This shift is pronounced in Sweden, a country where interest rates
have long been at rock bottom. Bukowskis, a trendy Stockholm auction
house, has seen rising demand for Swedish art and Scandinavian
designer furniture.
The prices of humble-looking vintage carpets that capture the
country's 1950s zeitgeist of social equality have risen more than
ten-fold within five years. One sold for $82,000.
The $17,000 footstool is typical of the sort of minimalist,
utilitarian furniture you might find at a Nordic summer cottage. For
an extra $15,000, you can buy a small solid wood coffee table to go
with it.
"Sales online in Sweden are exploding," said Paulina Sokolow,
Bukowskis creative director. "The prices are really increasing. I
don't think we've seen the peak."
Wine has been a big money maker. A 12-bottle case of Chateau
Mouton-Rothschild from the 2000 vintage has risen in value from
roughly $2,800 at the time to around $18,600 now. Bonus: whatever
happens to prices, you can always drink it.
"The returns look attractive in the current climate," said Tom
Gearing, managing director of Cult Wines, a British wine investment
firm. "And if everything goes wrong, you are still going to have a
tangible asset."
CASH HOARDING
Hans Peterson, chief investment strategist at Sweden's SEB bank,
says many customers want new ways to invest.
"Clients are frustrated," he said. "It results in having to buy into
cyclically sensitive assets such as equities, which can make those
markets more volatile. People are also investing in property."
The soaring prices for Swedish footstools and rugs come in a country
where property prices shot up by 36 percent since the end of 2013.
The sale last year of a $12 million apartment in Stockholm set a new
record, though it would barely be noticed in London or New York. The
boom has been fueled in part by tax breaks but also by Sweden's zero
interest rate that turned negative in 2015.
A negative rate increases the cost to banks of hoarding cash,
designed to fire up lending.
But this heady environment, especially after a recent stock-market
swoon, looks vulnerable.
"Are the risks too high?" said Peterson. "Only time will tell."
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CAUTIONARY TALE
The experience of Japan, which has been struggling through two "lost
decades" of stagnation, provides a cautionary tale.
Like many cities in Europe now, Tokyo too saw a sharp rise in
property prices and in demand for art in the early 1990s.
An abrupt tightening of property investment rules by the Japanese
government triggered a collapse in home prices, dragging down the
art market with it.
Japan's subsequent slashing of borrowing rates, which reached zero
around 2000, failed to reanimate the economy.
During nearly 20 years of deflation, consumers have postponed
spending, believing prices will continue to fall. The country's debt
meanwhile grew to twice the size of its economy.
This is precisely the fate that the European Central Bank is
determined to avoid. Its chief means of doing so, however, involves
keeping borrowing rates low.
In Switzerland, negative rates, which see the central bank charge
banks to hold their money, are being passed on to some customers,
forced to pay to keep money on deposit.
Some people prefer to stuff money under a mattress. The amount of
cash stashed in homes or vaults from the euro zone has topped 1
trillion euros, much of it in 500-euro notes.
"It's become clear to everybody that we have negative interest
rates, they seem to be here for a while and this affects preferences
of investors," said Alfred Roelli, a senior portfolio manager at
Pictet, a Swiss bank which introduces its clients to art and
collectibles at special events.
He said the low rate environment "forces people to be more
adventurous and more open to new investment ideas".
Robert Ketterer, who runs an auction house in Germany, said the low
rates "are good for business because it prompts some, who say they
can't get a return on their savings, to buy art."
"Owners, on the other hand, are reluctant to sell because they don't
know what to do with the money."
($1 = 8.4873 Swedish crowns)
(Additional reporting by Johan Ahlander in Stockholm, Joshua
Franklin in Zurich and Tetsushi Kajimoto in Tokyo; editing by Peter
Graff)
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