Say these five words out loud very quickly: Bifurcation, Backwardation, ZIRP, NIRP, Contango.
Did you do that?
If so, did you sound like a cheerleader singing some foreign language?
These are the actual words used by many Wall Street marketers, gurus and promoters.
They may sound ridiculous or confusing, but they serve several purposes. (1) Detect or describe certain market conditions. (2) They act as “signals” for trading purposes. (3) They are intended to confuse and / or impress you.
And these are just some of the many words, acronyms and sayings that make up Wall Street’s “Secret Language”.
The funny thing is that most people (including me) aren’t impressed with words that don’t make sense.
However, if you have a basic understanding of them, you will be better equipped as an investor and are more likely to stay ahead of the crowd. Think of it as learning how to “connect the dots” of a financial puzzle.
Compare this to trying to do business in a foreign language (German, French, Japanese, Greek, etc.). If you don’t understand the language, you will probably lose money … A LOT of money.
So, just like learning any language, you need a good teacher or translator who makes it simple and easy to understand.
Here we come.
In this article, we will present a few words so you can see how easy it is to learn a language and, at the same time, understand how Wall Street makes things so confusing.
Let’s start with ZIRP. It is an acronym meaning “Zero Interest Rate Policy”.
It was launched after the collapse in 2008 in order to “allegedly” stimulate the economy. It is true that the ZIRP has caused critical damage to most of the nation’s pension plans. (Interest rates need to be high so they can fund their plans for their retirees.) The ZIRP has also crippled most senior citizens who depend on interest on their investments for a living.
Although rates are rising slowly, it will take a long time to repair the damage done by the ZIRP.
But let’s move on to NIRP. It is another acronym meaning “Negative Interest Rate Policy”. Yes, you read that right. NEGATIVE interest rate policy.
This is more collateral damage than the collapse of 2008 and is in force mainly in European countries.
Here’s the crazy part. When a country’s government bonds have negative interest rates (currently -0.05% to -0.36% or more), investors have to PAY THEM to keep their money.
It is a losing offer for an investor and it is hard to imagine someone buying bonds with negative rates, but millions have been sold.
We’ve just scratched the surface here, but we hope you see how very confusing and misleading these acronyms are.