|Dow||-10.15 to 18,214.42|
|S&P 500||-3.11 to 2,110.75|
|Nasdaq||+20.75 to 4,987.89|
|10-YR Yield||+0.05 to 2.02%|
|Gold||+$6.50 to $1,208.00|
|Crude Oil||-$2.10 to $48.89|
You know the old comedy routine, the one where Henry Youngman says: “Take my wife … please”?
Today’s foolish bond investors are doing the same thing, only they’re saying: “Take my money … please!” And they’re not saying it in some smoky nightclub. They’re telling it to the governments of Switzerland, Denmark, France, and most notably, Germany!
What do I mean? Yesterday, Germany sold five-year government bonds. Not normally a big deal. Countries do it all the time.
|Today’s foolish bond investors are paying governments to borrow from them.|
What stands out, though, is that Germany sold those 3.28 billion euros worth bonds at a negative yield of around -0.08 percent. That means bond investors literally lined up at the German Treasury, and said “I’ll buy 10,000,000 euros of your bonds, and at maturity … five long years from now … you can give me back 9,992,000. Pleasure doing business with you.”
Does anyone else think this is, how do I put it? 100 percent NUTSO!
I mean, think about it. Would you buy a stock if you knew you were guaranteed to lose money when you went to sell it? Would you literally pay someone to borrow money from you? Is there any world in which that shows any amount of common sense?
Of course not! But brainiac institutions around the world are doing it anyway.
They figure the European Central Bank will come in and buy their wildly overpriced bonds (with incredibly negative yields) at even more wildly inflated prices (and even more deeply negative yields)! The ECB’s QE program starts in March, and officials have pledged to buy 60 billion euros worth of bonds per month for the next couple of years.
Bloomberg is now tracking $2 trillion worth of securities that trade at negative yields. European bond buying is so aggressive that even lowly Portugal is paying just 1.89 percent to borrow money for 10 years. The country’s bonds just rallied for 12 straight days, something that hasn’t happened in a decade.
|“For your fixed-income or yield-seeking money, focus on assets that actually offer value.”|
I don’t know when this lunacy ends. As I noted, the ECB said it’ll keep buying bonds well into 2016. What I do know is that I’m not going to dive in and lend my hard-earned money and get back less dough in return … and I suggest you don’t either!
For your fixed-income or yield-seeking money, focus instead on assets that actually offer value. That would include deeply oversold emerging market bonds and MLPs, or high dividend-paying stocks.
Now it’s your turn. Do you think it makes sense for lenders to pay interest to borrowers? Why are so many government bonds sporting negative yields? Should the ECB continue pursuing policies that push us in that direction? Or is it time for someone over there in Europe to wise up? Let me and your fellow investors know at the Money and Markets website!
|Our Readers Speak|
Oil and interest rates grabbed your attention yesterday, in light of the gyrations we’re seeing in both tied to supply data and Federal Reserve speech-making.
Reader Roger said the greenback is going to keep rising, with the Dollar Index ultimately hitting 103 (versus around 94.50 now). That means “Oil will tank in the second half of the year” and that he is “waiting to jump on the bandwagon for oil stocks.”
But Reader Lee H. said one major wildcard could blow the lid off of oil prices: Renewed Middle East conflict. His take:
“A short-term factor is the increasing potential for unilateral Israeli action regarding Iran’s nuclear activity. An attack by Israel is certainly growing more likely exponentially as the U.S. dithers. Such an attack will immediately drive oil prices well beyond $120 per barrel.
“In addition, a long-term factor is the impact on low prices on OPEC producers who, at some point, must take action to raise prices to stop their bleeding and adverse impact on their bottom line.”
Reader Myron R. also noted the similarities between what’s going on now and what happened in the mid-1980s, a parallel I have made myself. His comments:
“This bear market in crude is very similar to the 1985-’86 collapse. Both are supply driven. Like in 86, crude declined for seven months and hit bottom, moved in a narrow trading range for a few weeks, broke out of this range to the upside for about six weeks, then declined and retested the lows.
“I think the same thing happens, as we are due for a rally soon, but will retest the lows in mid-April as spring brings warmer weather and a decline in heating oil demand. I don’t think the gasoline demand will rise any more until summer. This country is still producing a lot of crude oil.”
Meanwhile, on the interest rate front, Reader Joan doesn’t think rates will rise because it will cost the government too much money. She said: “The servicing of the U.S. debt would overwhelm the money available for entitlements and defense if interest rates were at more normal levels. Financial repression will continue as long as Obama rules.”
Unfortunately, if that’s true, Reader Mule says the average person will suffer even more. The comments: “The artificially low interest rates and printed-out-of-thin-air dollars are part of the wealth redistribution scheme, destroying the savings of the Middle Class.”
Thanks for all your comments everyone! I’ve made my view on oil and rates pretty clear, and now it’s just a question of watching these markets to see what happens next.
Here’s one thought I will offer though: Regardless of whether oil prices go a little lower – to $30 or $40 or whatever – or stabilize here, is that really a reason to stay away from energy stocks? After they have already tanked 70 percent or 80 percent in some cases?
I sure don’t think so. Who cares if you maybe end up suffering a 5 percent or 10 percent drawdown in the short term … if it might be followed by a doubling or tripling in value in the long term? No one in the world can catch the exact low in every asset market all the time. The trick is to invest when the odds are heavily in your favor, and not worry about every little market wiggle – when it won’t matter a hill of beans down the road!
Any other thoughts you’d like to share? Think I’m totally off base? Then head on over to the website and comment when you have a chance!
|Other Developments of the Day|
The infamous “Jihadi John” — who has appeared in multiple ISIS hostage videos — has been identified. His real name is reportedly Mohammed Emwazi, and he’s a Kuwait-born man who grew up in West London, earned a college degree in computer programming, and traveled to Syria in 2012.
Speaking of ISIS, three men living in New York and Florida were arrested and charged with planning to travel to the Middle East and join the group. They also discussed harming President Obama and police or soldiers.
Durable goods orders rose 2.8 percent in January, the first gain in three months. A key gauge of business investment bounced back as well, with a 0.6 percent rise. But initial jobless claims rose 31,000 to 313,000 in the week that ended February 21. That topped economist forecasts.
On the earnings front, cloud computing giant Salesforce.com (CRM, Weiss Ratings: C-) managed to blow it out in the fourth quarter. Deferred revenue growth of 32 percent impressed investors, as did the sharp decline in losses from a year ago. Its shares rose to an all-time high as a result.
Looking to weigh in on any of these stories, or others I didn’t highlight? Then go to the website and let me hear about it.
Until next time,