Say these five words aloud: Bifurcation, Backwardation, ZIRP, NIRP, Contango.
Did you do that?
If so, did you sound like a cheerleader chanting a foreign language?
These are the real 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, abbreviations and sayings that make up “Secret Language” from Wall Street.
The funny thing is that most people (including me) aren’t impressed with words that don’t make sense.
However, if you understand them basically, you will be better equipped as an investor and more likely to be ahead of the masses. Think of it as learning how to “connect the dots” of a financial puzzle.
Compare this to trying to run a business in a foreign language (German, French, Japanese, Greek, etc.). If you don’t understand the language, you’ll probably lose money … A LOT of money.
So, like learning any language, you need a good teacher or translator who makes it simple and easy to understand.
That’s where we go.
In this article, we’ll introduce 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 the ZIRP. It stands for “Zero Interest Rate Policy”.
It was launched after the collapse in 2008 to “allegedly” stimulate the economy. It is true that the ZIRP has done critical damage to most national pension plans. (They need high interest rates to be able to finance their plans for their retirees.) The ZIRP has also crippled most senior citizens who depend on interest on their investments for life.
Although rates are rising slowly, it will take a long time to unravel the damage done by the ZIRP.
But let’s move on to NIRP. This is another abbreviation that means “Negative Interest Rate Policy”. Yes, you read that right. NEGATIVE interest rate policy.
This is greater collateral damage since the collapse in 2008 and is in effect mainly in European countries.
Here’s the crazy part. When government government bonds have negative interest rates (currently -0.05% to -0.36% or more), investors MUST PAY them to keep the money.
It’s a loss of proposal for an investor and it’s hard to imagine anyone buying bonds with negative rates, but millions have been sold.
We’ve just scratched the surface here, but we hope you see how these acronyms are very confusing and misleading.