But today, the markets are worried about the “Zero Bund.”
That’s because for the first time in history, the yield on Germany’s benchmark 10-year government bond (or “bund” in German) knifed through 0%. It later fell as low as minus-0.035%.
The move coincided with a massive, worldwide push toward lower and lower yields – with Japanese 10s hitting minus-0.19%, Swiss 10s falling to minus-0.55%, and British 10s dropping to an all-time low of 1.11%.
Here in the U.S., the yield on the 10-year Treasury note slipped to 1.57% before bouncing slightly. That level is key because it was the intraday low on February 11 – a day when global markets were in a state of total panic. If 10s take that level out, it puts the all-time low of 1.4% from summer 2012 in play.
|Is the all-time low yield of 1.4% in play?|
What the heck is going on? Why are investors willing to accept no yield at all – or even sub-zero yields – to own government bonds?
Start with global deflation fears. Central banks worldwide have absolutely, positively failed in their efforts to boost inflation. Just this week, a gauge of future inflation expectations in Europe fell to a record low. That’s despite the European Central Bank pursuing some of the most aggressive “stimulus” anywhere.
But it’s not just continental Europe. The U.K. hasn’t seen 2% core inflation since June 2014. In Japan, core inflation has been hovering around unchanged for the better part of the last decade despite massive amounts of QE and now, NIRP. Even here in the U.S., the Fed’s preferred core inflation gauge hasn’t hit Janet Yellen’s 2% target in more than four years.
What central banks have … um … “accomplished” is to encourage speculators and asset managers the world over to just buy what the banks are buying. The speculators and asset managers know central banks are going to be in there every day purchasing government bonds, mortgage bonds, corporate bonds, and more.
So they’re buying those securities, too – not because they think those securities are super-cheap or tethered to underlying fundamentals, but because they know they can always dump that paper on someone else. Think of it as the central banker edition of the “greater fool theory.”
Then in the short term, you have a one-two combination of U.S. recession fears spurred by the lousy May jobs report and surging worries about the Brexit vote. Investors aren’t just concerned about what a “Leave” vote might mean for the British economy, or whether it will prompt additional policy moves by the Bank of England (More U.K.-QE or rate cuts). They’re also worried it will encourage nascent independence/anti-elite/nationalist/isolationist movements in other European countries.
Finally, have you seen the stock charts of Europe’s major banks? Deutsche Bank (DB), Banco Santander (SAN), HSBC Holdings (HSBC), UBS Group (UBS), and many others are plunging toward multi-year or all-time lows. That’s because plummeting interest rates and flattening yield curves are crushing their profits.
They’re also overly exposed to bad loans … their overseas expansions are proving to be disastrous … and they’re facing a never-ending wave of government investigations, lawsuits and multibillion-dollar penalties. That’s exactly why I’ve been warning you to stay the heck away from these sickly stocks for a LONG time.
I can’t say precisely what will happen in the next day or two. Bond prices are getting stretched to the upside, while yields are getting stretched to the downside. We’ll get the results of the latest Federal Reserve policy meeting tomorrow, as well as results of the Bank of Japan’s latest gathering on Thursday. Those events could lead to some additional short-term market fireworks, depending upon what policymakers do.
But the big picture outlook remains the same: We’re witnessing Quantitative Failure both here and abroad. We’re facing lousy global growth. We’re seeing increasing volatility in a wide range of markets. And of course, as I first pointed out a year ago, the credit and economic cycles here at home are turning for the worse.
That makes for a dangerous environment for many stocks. But it’s just the kind of thing that could push bond prices (and gold!) much higher. That’s why I’ve been playing those trends for all their worth in my All Weather Trader service.
Lastly, you’ve probably seen my recent invitations for the 2016 Money, Metals, & Mining Cruise. Time is getting short because we set sail aboard the Crystal Serenity from Anchorage to Vancouver on July 10. I urge you to click here for more details soon, or to call my team at 800-797-9519 and ask for the Money, Metals, & Mining special rates.
But I also understand that a cruise may not be in your plans. If that’s the case, you do have an alternative. You can join me and several other experts for a one-day, post-cruise event in Vancouver – the Money, Metals, & Mining Symposium on July 17.
I will be presenting there, as will Peter Schiff, of Euro Pacific Capital, Eric Coffin, of HRA Advisories, Brien Lundin, of Jefferson Financial, and several others. It’s free to register. All you have to do is click here.
That’s all I have for now. But boy are these interesting times we live in. So what’s your take on the big move in bonds? The turmoil in stocks? The outlook for safe-haven investments like gold? Hit up the comment section and fire away!
As volatile as the markets are, we can’t (and shouldn’t) ignore the tragedy in Orlando — or what it says about broader risks to American freedom and safety. Several of you weighed in on the attack, and how you think our country should respond.
Reader Vinman said better border control is the answer, offering this view: “Trump was right again. Had the government listened and vetted people immigrating into this country, just maybe this could have been avoided. It is unbelievable to me with all that’s going on in Europe that our government would not act more responsibly when they let people emigrate into our country.”
But Reader Harry B. cited access to very powerful weapons as a key cause of these senseless killings: “We are very saddened and extend our sympathies when hearing of another homegrown, shooting outrage in Orlando with America, as we are in England, so threatened and attacked by this religious-based aggression here and abroad.
“I understand that the majority of America, regardless of political affinity, wish to have proper, sensible gun control, particularly assault rifles, including the favorite of assassins, the AR-15. But Congress regularly, overwhelmingly blocks this legislation after much powerful financial lobbying. Surely they must be aware that the U.S. murder rate is nearly 25 times higher than in the rest of the developed world.
“Meanwhile, it becomes clearer and clearer that European gun control is very poor, made so much easier for the terrorists by the immigration crisis and as you pointed out, an on-the-ground support network that has been allowed to grow by a slow, un-coordinated response.”
Reader Chuck B. also zeroed in on gun control, saying: “I don’t often agree with Hillary, but her question as to why someone on the FBI’s watch list is allowed to freely buy firearms, seems valid. Mateen should have been turned down. Of course, he could just go to the street market, I suppose. Maybe pay more for an AR-15.”
As for Brexit, many of you have already been weighing in on the vote. Reader Peter said: “If the British value freedom over bureaucratic serfdom, they will vote against the elites and for Brexit.
Reader Frank S. also said a “Leave” vote makes sense: “I hope the U.K. does leave the EU. The fear-mongering and paranoia the ‘Remain’ camp is peddling (a.k.a. ‘Project Fear’) is in the interest only of EU bureaucrats and the special interests in collusion with them.”
Lastly, on the subject of ultra-low and/or negative interest rates, Reader David E. said: “Why, as Bill Gross now states, is the investor faced with 500-year lows in rates? This is not a matter of ‘renting’ money, as we learned in Econ 101.
“In my opinion, it is a matter of deflationary outlook and storing one’s investment funds to make certain of return of capital. I’m ‘talking my book’ certainly, with no stocks, no bonds, no preferred stocks – just U.S. Treasury guaranteed obligations.”
I appreciate all the comments at this difficult time for America and Europe, especially in light of the news about yet another terrorist attack in France. But in an attempt to focus on markets, given that is my primary job here, I will just say that the ongoing plunge in interest rates is clearly rattling global investors. The Brexit polling trends are only adding to that uncertainty and fear.
But as you know, I’ve been advocating a very cautious investing stance since last summer. That’s because I foresaw a significant, cyclical turn in the credit market and the economy, and a corresponding surge in volatility and uncertainty.
So I trust you’re riding this choppiness out in relatively good shape. I will also continue to do my best to guide you in the weeks and months ahead, come what may.
Who was Omar Mateen? What caused the 29-year-old security guard to snap, and go on his murderous rampage? Law enforcement personnel are digging into that now, and several contradictions are becoming apparent. This New York Times story goes into more detail. As for the Orlando victims, this touching CNN piece includes detailed portraits of those who were killed.
Speaking of terrorism, a 42-year-old police officer from a town northwest of Paris and his wife were killed late Monday by a 25-year-old intruder. Police stormed the home and killed the man, who was later identified as Larossi Abballa, a local who had spent time in jail a few years ago for helping a jihadist recruiting network.
Retail sales rose 0.5% in May … 0.4% if you exclude autos … and 0.3% if you exclude autos and gas. Those figures were slightly better than economists expected. On the inflation front, import prices rose 1.4% last month – roughly twice the average forecast. Even if you strip out fuel, you get a 0.3% rise. That was the most since March 2014.
I remember all the breathless hype and fanfare about the rollout of Siri, the iPhone’s talking assistant, when it hit the market a few years ago. But my personal experience with Siri has been underwhelming, and I rarely use her.
Apple (AAPL) is now trying to change the experience of millions of users like me by integrating Siri better with third-party apps and expanding her reach to other Apple gadgets. The upgrades are also designed to fend off competition from gadgets and voice-based services produced by Amazon.com (AMZN), Alphabet (GOOGL), and others.
What do you think about Siri – useless or useful? How about the latest economic data? Is the U.S. firming up or slowing down? And of course, if you have any further thoughts about the tragedy in Orlando, be sure to share them in the comment section below.
Until next time,