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 a foreign language?
These are actual words used by many Wall Street traders, gurus and promoters.
They may sound funny or confusing, but they serve several purposes. (1) They reveal or describe certain market conditions. (2) They act as “signals” for trading purposes. (3) They are intended to confuse and/or impress you.
And those are just a few of the many words, acronyms and sayings that make up the “Secret Language” of Wall Street.
The funny thing is, most people (myself included) aren’t impressed by words that don’t make sense.
However, if you have a basic understanding of them, you will be better equipped as an investor and 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 run a business in a foreign language (German, French, Japanese, Greek, etc.). If you don’t understand the language, you will most likely 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 come in.
In this article, we will introduce a few words so that you can see how easy it is to learn the language and, at the same time, understand how Wall Street makes things so confusing.
Let’s start with ZIRP. It is an acronym that means “Zero Interest Rate Policy”.
It was launched after the 2008 crash to “supposedly” stimulate the economy. It is true that ZIRP has caused critical damage to most nations’ pension plans. (They need interest rates high to fund their plans for their retirees.) ZIRP has also crippled most senior citizens who depend on interest from their investments for a living.
Although rates are slowly rising, it will take a long time to undo the damage done by ZIRP.
But let’s move on to NIRP. It’s another acronym that stands for “Negative Interest Rate Policy.” Yes, you read that right. NEGATIVE interest policy.
It is more collateral damage from the crash of 2008 and is in effect 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 must PAY THEM to keep their money.
It’s a losing proposition for an investor and it’s hard to imagine anyone buying bonds with negative rates, but millions have been sold.
We’ve only scratched the surface here, but hopefully you can see how confusing and misleading these acronyms are.