|Dow||-128.41 to 17,849.01|
|S&P 500||-6.99 to 2,074.20|
|Nasdaq||+7.93 to 4,937.43|
|10-YR Yield||-0.04 to 2.058%|
|Gold||-$5.10 to $1,148.10|
|Crude Oil||-$0.72 to $43.14|
Remember the good old 1980s? A roaring bull market (well, except for 1987) propelled most global stock markets steadily higher that decade.
And Japan was at the pinnacle of its economic dominance with the Nikkei 225 Index of Japanese stocks posting stellar gains of nearly 500 percent during the 1980s — posting annual returns of 19.5 percent per year that decade!
Flush with cash, Japanese investors had a very big appetite for U.S. assets back in the ’80s. They gobbled up the storied Pebble Beach Golf course and prime Manhattan real estate. Japan also plowed billions of dollars into U.S. government bonds.
Well, times have changed for Japan, but some things remain the same.
For one thing, since 1989 Japanese stocks have plunged 55.2 percent — losing 3.15 percent per year on average since then. That’s 24 long years of NEGATIVE returns for the Nikkei.
|The Nikkei has seen 24 long years of NEGATIVE returns.|
But some things haven’t changed; Japanese investors still have a big appetite for U.S. bonds! The reason is simple: ZIRP — or zero interest rate policy.
In a desperate attempt to end two decades of economic malaise, the Bank of Japan has practiced this policy for years. They engaged in multiple rounds of quantitative easing way before the Fed and other Central Banks got in on the act.
Yields on Japanese government bonds have hovered near ZERO for several years now. More recently European government bond yields reached the zero-limit, and some have turned negative, as the European Central Bank just launched an ambitious QE program of its own.
As a result, U.S. Treasury securities look like the best game in town to yield-starved global bond investors. Treasuries offer the highest rate of interest compared to nearly any other major develop country, and by the widest margin since 2006.
|“The surging U.S. dollar is an added bonus that’s attracting global bond investors.”|
Plus, the surging U.S. dollar is an added bonus that’s attracting global bond investors.
Japan is already America’s second-largest foreign creditor nation (after China) with over $1.2 trillion stashed in U.S. government debt. But according to a recent report by HSBC research, Japan may be about to invest $300 billion more into Treasuries over the next two to three years alone.
The majority of Japanese government bonds yield 0.5 percent or LESS compared with a yield of 2.07 percent on U.S. 10-year notes. So it’s no surprise that Japan’s biggest banks, brokers and insurance firms are dumping low yielding domestic bonds and loading up on U.S. Treasuries instead. European firms are quickly following suit.
This is all somewhat ironic, considering how investors are fretting over tomorrow’s Federal Reserve policy statement for any hint about when U.S. interest rates may be on the rise.
The truth is, the Fed doesn’t need to be in any hurry to raise rates, because Treasury securities are already attracting plenty of global bond buyers.
|Our Readers Respond|
Mike Larson is out, but he closely watches the comments we receive from our readers and will respond when he returns. So click here to comment on interest rates and how you and/or the market will react to a hike or to comment on any other matter.
|Other Developments of the Day|
Ryanair, Europe’s largest budget airline, says it wants to launch cheap transatlantic flights by the year 2020 — for $15 a flight! Of course taxes will add about $200 to a flight from the U.S. to the U.K., and there will be “extras” adding up the final fare. The airline is in talks with manufacturers over a long-haul fleet. If it can secure the aircraft, Ryanair plans to offer budget flights to Europe from up to 14 American cities. Other airlines in the past have tried cut-rate transatlantic flights without any success. And anything can happen between now and 2020, so we won’t be booking our flights just yet.
U.S. housing starts tumbled to the lowest level in a year in February, battered by harsh weather, another sign that the economic recovery slowed in the first quarter of the year. New starts fell 17 percent to a seasonally adjusted annual pace of 897,000 units, the Commerce Department said.
Giving up millions: Chris Borland, a 24-year-old budding start for the San Francisco 49ers, said he’s retiring from the NFL due to avoid long-term problems he could suffer from head injuries. He said he hasn’t suffered any injuries of this type yet but that the potential is there. “I just honestly want to do what’s best for my health,” he told ESPN. “From what I’ve researched and what I’ve experienced, I don’t think it’s worth the risk. … I’m concerned that if you wait (until) you have symptoms, it’s too late.” Borland had a $3 million contract with the 49ers and earned $420,000 last year and banked $154,000 of the $600,000 bonus he agreed to when he originally signed.
Have you had any experiences (good or bad) when flying cut-rate airlines? How has the housing market in your area held up this winter? Do you think Borland is making the right move? Walking away from millions at age 24 is pretty gutsy. Click here to sound off.