March 05 2015
“Well, I never heard it before,” said the Mock Turtle; “but it sounds uncommon nonsense.”
It was an Alice in Wonderland week. European countries, companies, and entrepreneurs were getting paid to borrow money, and ordinary Joes with money in some European banks got letters saying the banks would be charging to hold their money. The New York Times reported:
“The most profound changes are taking place in Europe’s bond market which has been turned into something of a charity, at least for certain borrowers. The latest example came on Wednesday when Germany issued a five-year bond worth nearly $4 billion with a negative interest rate. Investors were essentially agreeing to be paid back slightly less money than they lent.
Bonds issued by Switzerland, the Netherlands, France, Belgium, Finland, and even fiscally challenged Italy also have negative yields. Right now, roughly $1.75 trillion in bonds issued by countries in the eurozone are trading with negative yields which are equivalent to more than a quarter of the total government bonds…”
At the end of February, many European stock markets were showing high single-digit to low double-digit gains for the year.
Meanwhile, back in the United States, the background report that supported Fed Chair Janet Yellen’s semi-annual testimony before Congress highlighted the effects of the Fed’s EAT ME cake – also known as quantitative easing – which left its balance sheet at about $4.5 trillion (up from about $1 trillion in 2008). Barron’s speculated the effect of an unexpected rise in interest rates could negatively affect the Fed’s bond holdings with maturities greater than 10-years. “If long-term rates do rise faster than anyone now anticipates, the Fed may run into difficulties of navigation that could prove a tad destabilizing to the economy.”
- Data as of 2/27/151- WeekY-T-D1-Year3-Year5-Year10-Year
- Standard & Poor’s 500 (Domestic Stocks)-0.0030.0220.1350.1550.1350.058
- 10-year Treasury Note (Yield Only)2N/A188.8.131.52.4
- Gold (per ounce) 0.51.2-8.9-11.81.710.8
- Bloomberg Commodity Index0.7-0.9-22.4-11.5-4.9-4.1
- DJ Equity All REIT TR Index-1.22.922.81517.29.2
*Indices are unmanaged and investors cannot invest directly in an index.
*Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*S&P 500, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend).
*The DJ Equity All REIT Total Return Index does include reinvested dividends.
*All investments involve risk – coins and bullion are no exception. The value of bullion and coins is affected by many economic circumstances, including the current market price of bullion, the perceived scarcity of the coins and other factors. Therefore, because both bullion and coins can go down as well as up in value, investing in them may not be suitable for everyone. Since all investments, including bullion and coins, can decline in value, you should understand them well, and have adequate cash reserves and disposable income before considering a bullion or coin investment.