Thursday, August 13, 2015

Underoptimized Dual EA on Equity Sell Signal

Dual exponential averages; fast under slow. Remains on sell signal. One whipsaw so far. Lots of daily price noise.

Friday, July 10, 2015

Tsipras Has Just Destroyed Greece

Monumental screwing of a people by their 'representative' .gov

Gives new meaning to the political term: Vishy

Definition. Vichy. Puppet, especially a puppet regime that carries out the political will of its conquerer.

Long and well worth the read

From nakedcapitalism

“Tsipras Has Just Destroyed Greece”

Posted on by
This post’s headline comes from an assessment by the Australian website MacroBusiness of the proposal that Greece submitted to its creditors in the wee hours of the morning in Europe. Greece has capitulated, offering to implement more stringent austerity terms than those rejected by voters last weekend by a resounding margin in the Greek referendum. We are posting the full text of the Greek proposal at the end of this post.
As MacroBusiness sums up:
This is basically the same proposal as that was just rejected by the Greek people in the referendum…This makes absolutely no sense. The Tsipras Government has just:
  • renegotiated itself into the same position it was in two months ago;
  • set massively false expectations with the Greek public;
  • destroyed the Greek banking system, and
  • destroyed what was left of Greek political capital in EU.
If this deal gets through the Greek Parliament, and it could given everyone other than the ruling party and Golden Dawn are in favour of austerity, then Greece has just destroyed itself to no purpose.
Our observations:
The proposal is indeed worse than the one rejected in the referendum last Sunday. From Kevin Drum, who links to the Washington Post (emphasis his):
Last Sunday the Greek population overwhelmingly rejected the European plan 61-38 percent.
So how did that work out for Greece? Not so well:
Under a 10-page blueprint completed late Thursday, the country said it would undertake austerity measures worth between 12 billion and 13 billion euros ($13 billion to $14 billion), including raising taxes on cafes, bars and restaurants.
The amount is significantly higher than the package of cuts that Greek voters rejected in a hastily called referendum on the bailout Sunday. But nearly two weeks of a banking shutdown that has brought the economy to a virtual standstill have left this Mediterranean nation with few other options to avoid sliding into bankruptcy.
The Greek blueprint for pension cuts and VAT increases is essentially copied word-for-word from the June 24 European proposal. There may still be sticking points elsewhere (I haven’t done an exhaustive line-by-line comparison of the two documents), but VAT and pensions were always the key areas of difference. Combine those concessions with the higher deficit target in the new blueprint and Greece hasn’t just caved in to the Europeans, it’s all but prostrated itself and begged not to be kicked out of the eurozone.
Or so it seems. There’s always the possibility of gotchas hidden away in a stray word or two. But at a first glance, it looks like total capitulation. Two weeks of bank closings and import stoppages has given the Greeks a vivid taste of what life would be like if Europe forced it to abandon the euro—as it seemed they were all too willing to do—and that short taste was quite enough, thank you very much. Viewed through that lens, apparently another few years of German-enforced austerity didn’t look so bad after all.
Like Drum, I have not done a line for line comparison, but for instance, Section 8, Labour Market, looks identical to creditor language I’ve read previously.
The proposal does not include debt relief.
Just re-read @atsipras & @tsakalotos letters, plus prior actions. I see no mention of debt relief. Acknowledgement that comes later? #Greece
— Peter Spiegel (@SpiegelPeter) July 9, 2015 ckquote>

Spiegel confirms his tweet in a Financial Times article, based on having copies of all three documents submitted by the Greek government to the creditors: “First, none of the documents mentions debt relief.”
You can search for it in the text below. I don’t see it there either.
Ironically, the proposal still shields the military. It calls for €100 million in cuts this year and €200 million for 2016. These are cuts versus budget, so the total cut on an ongoing basis is €200 million. The creditors had called for €400 million. Note also that the story that claimed that the IMF rejected cuts appears to be false. Not only was it denied by the IMF, but we are told by a reliable source that a US official in a position to get an answer from the IMF asked about the press story saying that the IMF objected to cuts said that the IMF had in fact pushed for the Greek government to make cuts to military spending and they were opposed.
Close confidant of Yanis Varoufakis and Greek government advisor, Jamie Galbraith, confirmed that Tsipras never intended to win the referendum. He essentially confirms the report by Ambrose Evans-Pritchard that many readers rejected, that the referendum was a ploy to save Tsipras’ and Syriza’s face in admitting defeat and allowing a new coalition or a new government to cut a deal with the creditors. From the INET interview with Lynn Parramore:
The recent Ambrose Evans Pritchard piece is very much on the mark (“Europe is blowing itself apart over Greece – and nobody seems able to stop it”). The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.
The government officials working on a deal appear, by accident or design, to have sent a version of the proposal to Parliament that includes debt relief when the version sent to the creditors does not. There were a couple of junctures at which the Greek team sent Brussels the wrong version of their proposal. But the European Commission and French have come to “help” the Greeks. One suspects that they’ve essentially take over the drafting process despite claims otherwise. It’s not clear how the creditors would be sent a “wrong” version (which would be fatal) or Parliament (which could be read as bad faith). There is a parliamentary vote at 2:00 PM in Athens; that is presumably more than ample time to get this sorted out, but it’s not a good sign.
Even with the Greek government having conceded, it may not be possible to get to a deal. The time is astonishingly tight, and a 13 page memorandum falls short of the level of detail usually required for programs of this sort. Incredible as it might seem to readers, developing countries, which represent about half the votes on the IMF board, are already up in arms that Greece has gotten attention and been given breaks that no other country has gotten from the IMF.
Normally, one would think it would be possible to let the hashing out of fine points go on another day or two (or five), but the asphyxiation of the Greek banking system makes that impossible. Even if a deal is agreed on Sunday, the banks are in such desperate shape and so drained of cash that it’s not clear how long it will take them to get back to a semblance of normal operations. We’ve pointed out repeatedly that mere twelve day bank holiday in Cyprus, which has a healthy economy before the banking crisis started and banks that had not been subject to a six month long slow-motion bank run before its ECB-induced crisis. It took two years for Cyprus to remove capital controls. Even if the ECB turns liquidity back on this Monday, the banks will remain walking wounded for a very long time. And many import-related businesses may be too badly damaged to survive. From the Financial Times:
Greek lenders face bankruptcy on Monday if the country fails to strike a deal with creditors over the weekend, according to senior bank executives, as they described frantic efforts to keep the country’s financial system afloat and their preparations for an uncertain future….
As the pressure has mounted in recent days, bankers told the Financial Times that Greece’s banks were effectively passing cash among themselves. The system is co-ordinated by the Bank of Greece, which has been asking healthier banks to return some of their liquidity so it can be doled out to weaker ones…
The banks are pinning their hopes on an eleventh hour deal between Greece and the eurozone that would allow the ECB to increase the €89bn in emergency funding that they have already drawn and also ease their borrowing terms.
Last week the ECB changed the rules so Greek banks were obligated to provide more collateral for every euro they borrowed from the ECB. The changes mainly affected collateral that was secured by a Greek government guarantee. One banker estimated about €16bn of collateral was “wiped out” by the ECB’s move.
If an increase is not secured, the banks “will be put under resolution and shut down”, one banker said.
In other words, if the ECB does not turn the money spigot back on this Monday, it may be impossible to avert a Grexit. One stopgap iwould be for the Eurozone countries to guarantee an increase in the ELA. A similar step was taken in 2012 when loans by the central bank to Greece were guaranteed while the country was technically in default. That approach thus has the advantage of having a precedent. But Bloomberg reported earlier this week that, “No concrete proposals are yet under discussion.”
And it’s not clear how banks would be resolved. We’ve pointed out that the only information we can find on Greece’s deposit guarantee fund is as of 2013, and it show it has only €3 billion. It’s unlikely to have risen since then, given how draconian austerity has been in Greece. That’s hardly enough to even begin to protect depositors in the case of bank failures. But where does the money come from when the government is bankrupt? Again from the Financial Times:
In a resolution scenario, the first step would be to wipe out some or all of the equity owned by shareholders and those who hold junior bonds and other low quality capital. Such actions could raise €30bn in tota….Greek banks hold about €40bn of loan loss provisions, covering almost 60 per cent of non-performing loans, say financiers.
If they cannot generate sufficient capital this way, bank executives say, they may be forced to “haircut” depositors. This could mirror events in Cyprus two years ago, when the government seized a portion of deposits above the €100,000 threshold covered by deposit insurance rules in order to recapitalise banks.
But some argue such a move would have limited effect: only about €30bn of Greek banks’ €120bn deposit base is outside the guarantee. Of that sum, about €20bn is the working capital of small businesses, which would have particularly harsh repercussions for the economy if it were subjected to a so-called bail-in.
Greek bankers are conflicted on the prospect of imposing losses on deposits below €100,000 and European regulatory sources say it is legally forbidden.
Shorter: many of the small business that haven’t been already pushed to or over the brink of failure by the bank holiday and capital controls would be via a bank resolution. And small businesses are even more important as employers in Greece than in the US.
Scarcities, particularly of drugs, and economic distress have intensified greatly this week. We warned that the damage done by a bank holiday would accelerate rapidly, and that is happening. While the plural of anecdote is not data, and both this Wall Street Journal story and Financial Times reporter Peter Spiegel’s Twitter survey are subject to considerable sample bias, both suggest that many “Oxi” voters of last weekend have reversed themselves as they’ve gotten a clearer picture of how destructive a Grexit could be. Moreover, in fairness to them, recall that they were given false assurances by Syriza leaders. Varoufakis insisted that banks would reopen last Tuesday no matter what, and that Greece has four months of pharmaceutical supplies. Tsipras assured voters that with a fresh mandate, he would get a better deal from the creditors. Party officials vociferously denied the assertion by European leaders meant a vote against the Eurozone and would be taken as a vote for a Grexit.
Excerpts from the Wall Street Journal account:
In the affluent suburb of Nea Erythrea, north of Athens, Iosif Perdikaris, a 72-year-old pensioner suffering from diabetes, was looking for insulin, an import made scarce by the ban on foreign bank transfers. When he was told at the third pharmacy he visited that there wasn’t any in stock, he snapped.
“How am I supposed to manage my diabetes without my insulin?” Mr. Perdikaris screamed at the pharmacist.
He said he was starting to regret voting against creditors’ terms for a bailout in last Sunday’s referendum.
“I voted ‘no’ and now look at this,” he said. “I can’t get my medications, and next week we may be using drachmas.”
Like many of those who sided with Mr. Tsipras in the referendum, Mr. Perdikaris was convinced the resounding “no” vote would strengthen the young leader’s hand in talks in Brussels…
Shortages of medications like Mr. Perdikaris’s insulin are beginning to bite, compounding distress especially among older Greeks.
Parents of babies and young children are stocking up on formula and other basic medications, pharmacists say.
The Greek government faces a legitimacy crisis. Given the overwhelming Oxi vote, how can Tsipras sign up for a deal that is even worse? There is a real possibility that young people, particularly in Athens, which has the highest population density of any city outside of Asia, will take to the streets.
And even if there is no outburst of protests, how can any government that signs a creditor-acceptable memo be seen as anything other that a Vichy state? Politico points out that Tsipras is likely to fracture Syriza with the proposal and will need to enlist other parties who supported a “Yes” vote to get the parliamentary approval he needs. That should hardly be a surprise to Naked Capitalism readers; we pointed out the disconcerting move the morning after the referendum, in which Tsipras met with leaders of all the parties outside the government save Golden Dawn and asked for their support, and all agreed save the communist party KKE. Did FDR seek the support of the defeated Republicans in 1933? I struggle to think of a similar move (beyond a mere polite gesture) after a landslide win.
It may be too late to reach an agreement even with the Greek capitulation. Despite the strong incentives to salvage Greece and avoid the unknown of a Grexit, distrust on the creditor side is high. Three days is perilous little time to persuade parties that have seen Greek officials repeatedly say one thing to the press at the side of officials like Merkel and then partly or fully repudiate those statements, often with vitriol, back in Athens. From Politico:
In Germany, conservatives among Merkel’s Christian Democrats, including Wolfgang Schäuble, simply don’t believe Athens has the will to implement a new program of reforms.
“How confidence-building measures can materialize between now and midnight on Sunday strains my imagination,” the sharp-tongued German finance minister told a conference in Frankfurt on Thursday.
Schauble is critical to any deal getting done, but it’s not clear even if he were to get religion and start whipping hard for a Greek rescue that he could turn the sentiment of the German public and MPs around quickly enough. Similar acute skepticism exists in other hardline countries like the Netherlands and Finland.
Finally, before the Macrodigest post which contains the full Greek proposal, a personal note. Many readers have been upset with our coverage to the point of taking out their anger against us in the comments section. They saw us as unfairly critical of the Greek government and by implication, too friendly to the Troika and Eurogroup.
In fact, we foresaw, correctly, virtually everything that has come to pass, including the deception of Syriza (see our post Tsipras’ Bailout Referendum Sham). And look at the comments section to see the resistance and at times hostility with which our assessment was received. And that is after not posting a large number of openly abusive comments that were caught in moderation.
We said from the outset that the Greek government would not succeed in its efforts to repudiate the memorandum unless it got meaningful help from outside parties, most important the US and and the European left. Neither rode in to the rescue. The US had clearly thrown its weight in with the Troika as of February and the European left is still missing in action (sympathetic op-eds late in the game don’t cut it). The Left Platform correctly saw that Syriza’s Plan A was toast as of the Eurogroup memo.
Other countries, like France or Italy, are healthy enough and large enough to consider breaking from the Eurozone. It was never a realistic option for Greece, save at a devastating economic cost. Syriza standing up to the Troika was tantmount to sending graduate students against an Panzer division. The outcome was predictable.
In addition, virtually all economists irresponsibly underestimated the consequences of a Grexit. They’ve analogized it to a severe currency depreciation like the case of Argentina in the early 2000s, where the country bounced back relatively quickly after a plunge so serious that parts of the country saw considerable desperation-induced violence. Moreover, Greek citizens were never allowed to make informed choices. Tsipras kept saying a deal was around the corner and the two sides were not far apart. And even before the referendum, he and other Syriza officials vociferously denied that a Grexit would occur.
Even the Left Platform, which had the better diagnosis of the situation, merely advocated a Grexit as an alternative way to defy the Troika, and neither seriously considered what it would entail (a war level of preparation) nor built public support for the level of sacrifice involved.
The Greek government has submitted as plan to the creditors that is worse than if they had rolled over and accepted the memorandum when it came into office. In the meantime, its actions have been wildly at odds with its rhetoric of defiance. Varoufakis volunteered to continue to implement austerity in February, by volunteering to run primary surpluses “always”. In a deeply depressed economy, that will guarantee more contraction. And the ruling coalition stripped every official coffer it could find to continue to pay the creditors, including borrowing against pensions, which now that the government is utterly bereft of cash, was tantamount to raiding them. And it recklessly refused to consider, much the less prepare for, what might happen if the Troika refused to relent. And as soon as their poorly thought out plans started to go off the rails, they tried to escape their failed handiwork via a cynical referendum rather than take responsibility and assume the mantle of leadership.
Syriza has thus managed to deliver to the neoliberals a victory more complete than they could ever have engineered on their own. This has been the basis of our criticism, that Syriza by engaging in an open war against an opponent it could never hope to vanquish, was doing not just itself but also the Greek people and the left, lasting damage.
The Greek negotiations are now being steered in large measure by the French, who are conceivably next in line if there is a Grexit, given Marine Le Pen’s rising star. If Greece and the lenders manage to reach an agreement, it’s hard to think that Greek citizens will see the ruling coalition as anything other that a creditor puppet state. If the two sides can’t agree and Greece falls into a Grexit, the economic devastation will be so large as again to discourage any state save Italy and France, from pursuing a Eurozone exit, and even in those two countries, it is likely to give Euroskeptics considerable pause.
The net effect is to give Germany, its retrograde ordoliberals, and its neoliberal allies freer rein to continue their destructive austerity policies. Despite how counterproductive austerity clearly is, Greece will be used as tangible proof that the cost of Euroexit is vastly higher. And that means that Germany will be able keep pursuing policies destined to destroy the Eurozone going well beyond their sell-by date: running large trade surpluses, refusing to finance its trade partners, and bucking all measures to move to meaningful Federal fiscal spending that might buffer national differences in performance and stealthily recycle some of the German trade surpluses. The end result will be more oppression, more suffering, and a more catastrophic eventual Eurozone breakup.

Spoo Whipsaw

Lots of whipsaws tend to precede big moves.

Tuesday, July 7, 2015

Sell Signal

My underoptimized dual ea crossover system threw a sell signal last Thursday. Note really important support at the 200 day average and long term (log chart) trend line below:

This signal is one part of my global macro quant system.

I've pared risk in growth stocks.

Thursday, June 11, 2015

Hindenberg Confirmation

Second day that all Hindenberg criteria meet.

Need two observations to confirm.

The criteria

Here are the FIVE requirements for a Hindenberg:

  1. The daily number of NYSE New 52 Week Highs and the Daily number of New 52 Week Lows must both be so high as to have the lesser of the two be greater than 2.2 percent of total NYSE issues traded that day.
  2.  The NYSE 10 Week Moving Average is also Rising, which we consider met if it is higher than the level 10 weeks earlier. This is different than looking at the current slope of the NYSE 10 week simple moving average. The slope can show rise while the overall level is lower. This is a criteria fail despite looking like a criteria pass
  3. The McClellan Oscillator is negative on that same day
  4. New 52 Week NYSE Highs cannot be more than twice New 52 Week Lows, however it is okay for new 52 Week Lows to be more than double New 52 Week Highs
  5. There must be more than one signal within a 36 day period, i.e.,there must be a cluster of Hindenburg Omens (defined as two or more) to substantially increase the probability of a coming stock market plunge.

Todays internals:

Markets Diary

4:09 PM EDT 6/11/2015
Issues NYSE Nasdaq NYSE MKT
See 4 p.m. Closing Diaries. Volume updates until 8 p.m.
Advancing 1,936 1,429 164
Declining 1,231 1,361 205
Unchanged 88 127 28
Total 3,255 2,917 397
Issues at
New 52 Week High 108 127 2
New 52 Week Low 91 30 13

Ten year JGB's Yield Trend Changing

The Kyle Bass Japanese Bear Trade perks up:

Wednesday, June 10, 2015

Half a Hindenberg Occured Today

Half a Hindenberg occurred today. Need to observations to confirm.

Here are the FIVE requirements for a Hindenberg:

  1. The daily number of NYSE New 52 Week Highs and the Daily number of New 52 Week Lows must both be so high as to have the lesser of the two be greater than 2.2 percent of total NYSE issues traded that day.
  2.  The NYSE 10 Week Moving Average is also Rising, which we consider met if it is higher than the level 10 weeks earlier. This is different than looking at the current slope of the NYSE 10 week simple moving average. The slope can show rise while the overall level is lower. This is a criteria fail despite looking like a criteria pass
  3. The McClellan Oscillator is negative on that same day
  4. New 52 Week NYSE Highs cannot be more than twice New 52 Week Lows, however it is okay for new 52 Week Lows to be more than double New 52 Week Highs
  5. There must be more than one signal within a 36 day period, i.e.,there must be a cluster of Hindenburg Omens (defined as two or more) to substantially increase the probability of a coming stock market plunge.
The hardest to get is number one. From WSJ:

Markets Diary

4:10 PM EDT 6/10/2015
Issues NYSE Nasdaq NYSE MKT
See 4 p.m. Closing Diaries. Volume updates until 8 p.m.    
Advancing 2,262 2,051 223
Declining 894 758 146
Unchanged 97 107 29
Total 3,253 2,916 398
Issues at
New 52 Week High 128 165 3
New 52 Week Low 84 41 19

Possibly a period of heightened volatility.

Tuesday, May 12, 2015

A Few More Bullish Underpinnings

So I wrote about the payrolls pump yesterday.

Global equities are down solidly overnight.

The Bloomberg Financial Conditions Indices remain unaffected. The EU version is even up sharply.

Some more bullish thoughts include the following:

AAII bull ratio shows small investors throwing in the towel. It's a blunt timing instrument. Nevertheless, it is (contrarianly) bullish. Note the uptrend channel intact for the SPY as well.

Next, notice the BKX Banking index. Financials are a leading indicator.

It sports large relative strength and sits at its highs. The BKX is a glaring green bean. It nears the top of their trend channel. Near term, this is an obvious stalling point. Longer term, this is a bullish underpinning.

If the BKX holds here or moves higher, despite general market weakness, look out above for the next move higher when selling abates.

Monday, May 11, 2015

Payrolls Pump

Nice gains from Payrolls Friday.

Bloomberg Financial Conditions Index for EU has surged higher (improvement). Given sketchy Greece-fire, market doesn't seem to care that much on default. Already priced.

US version rallies back to .7 STD above normal. No breakdown here. Bullish underpinning.

Little downside traction on pre employment selloff.

Market's path of least resistance remains up.

Friday, May 1, 2015

Signs of US Technical Weakness

Growth stocks act very soft and mushy. When the leaders fail, the market tends to have trouble moving higher.

Here are a couple of charts that merit review. The first is net new highs. It shows very strong long term resistance since 2014 and a near term breakdown. This shows the failing leadership.

Note the Wilshire 5000 trendline break.

The second chart is the VIX. It broke two near term trendlines towards higher volatility yesterday.

Since the beginning of April's rally, the NASDAQ flashes four distribution days - declines of at least 0.2% on heavier volume than the prior session. It broke its 50 day SMA yesterday.

The third chart shows the sharp breakdown in the Russell 2K below its 50 day SMA. The Russell also broke its relative strength uptrend vs the SP 500 in play since last October.

Thursday, April 16, 2015

Building Signs of EU Credit Stress

(Edit: Today, April 17th, I added the Greek 10yr chart below to LIBOR and the EU FCI graphs.)

Two charts


Greek Stress from April 17

Friday, March 20, 2015

AAII Sentiment Contrarianly Bullish for US Equities

Bullish for stocks. NASDAQ broke out, pulled back to test the breakout with a hard shake last week. McClellan Oscillator became quite oversold, sentiment soured (see graphic), and were set to move higher.

Wednesday, February 25, 2015

Checking and Savings Accounts with Negative Rates of Interest

This is a nice piece flushing out some of the issues of cash versus electronic bank accounts in an inverted, short term negative interest rate environment.

The author avoids discussing capital controls against cash withdrawls. This would be instituted by .gov to control against what he proposes. This would be logical .offshute from a negative interest rate regime. It further punishes savers, savings and prevents bank runs.

On an ad hoc basis, this is already somewhat the case. Certain branches of TBTF banks will drastically limit (4 figures) the amount of cash a branch will allow you to withdraw on both a given day and in total from them. WFC comes to my mind. You would have to find and idiosyncratic branch manager willing to authorize large cash removals.

The EU is the space to watch on this.

The zero bound debate – are negative rates a tightening of policy?

Matt’s and James’s recent blogs outlined some of the issues markets face when rates go negative. This is obviously no longer just a theoretical debate, but has real investment implications. Why do investors accept sub-zero rates when they can hold cash ?

To recap using Swiss Francs for example, it makes sense for a saver from a purely economic view not to deposit a Swiss Franc note into a negative yielding bank account, as it will be worth less when it gets returned, due to negative rates.

However, the saver faces risks by holding physical cash as they don’t receive the security benefits from using a bank account (ie paying for an electronic safety box). The use of the old fashioned lock and key is not as convenient as a bank account, but would make increasing sense to use as deposit rates get more and more negative. This demand for owning physical as opposed to electronic cash is not confined to cash accounts. In theory, as the term structure of interest rates falls below zero, bond investors should sell their bonds and own “cash in a box”  instead. How efficient is it to do this?

The great problem with using paper money as a saving instrument is that its inherent best in class liquidity also makes it vulnerable to fire and theft. From an individual’s perspective, the use of a secure fire proof safe deposit box in a bank or a secure location away from home is the best starting point. The optimum solution however relies on economies of scale. Is this easily achieved?
As an investor, diversity makes sense. Therefore, an individual should spread their cash over a wide selection of safety deposit boxes in a wide variety of very secure locations. An improvement, but currently not that practical. But there could be a way to achieve the above goals relatively efficiently and cheaply.

In a negative interest rate environment  there are likely to  be enough investors who want to own bearer cash for a network of highly secure safe deposit boxes to be developed by a bank or institution. This means there would be a high degree of security and diversification regarding the location for the cash. In order to make the cash available to the investor easily, certificates of deposit could be issued physically or preferably electronically. This would allow the investor to transfer money easily, as they would only need to go to their nearest depository to deposit or access the cash, or their nearest bank if a bank agrees to physically deposit or withdraw cash for them.

Basically this ends up being a bank account where the cash does not get lent, but has a custodian holding charge. In theory, in the extreme, you could even develop markets in exchange traded derivatives issues that are linked to cash held in a depository, to allow individuals and large institutions to manage cash as a saving instrument with no negative yield. A new efficient savings industry could be developed in a negative yield environment, so limiting the downside to the sub-zero bound for short and long term interest rates.

One side effect would be that all these savings would have to be held in real cash, which will mean an increase in the demand for physical notes. If cash is held in custody and is not lent on then the supply of money in the economy for normal transactions will fall. This begins to sound deflationary, and runs counter to why sub-zero policy is being pursued.

As long as cash exists in a physical bearer form it is hard to see how you can have significant negative rates of interest in an economy where government debt and cash are the obligations of the same entity, as they are truly fungible. At its worst, monetary policy of sub-zero rates could encourage a deflationary spiral. Maybe the only policy left to create inflation is real and not conservative QE (see my last blog).