2016-07-16
My mind is more on Bonds than Gold for the past couple weeks. I’m thinking ahead.
As you know, 10-year bond yields have been falling for ten years and dropping rather quickly since January 2014, which means that long-term bond investors (i.e., some of us) have profited while governments (i.e., all of us) are getting deeper in debt. A couple points come to mind.
I have been saying for some years now that with bond yields so low, there is no income play there. The bond market has been all about trading for capital gains; that is, trading mostly by bankers to strengthen their balance sheets.
Maybe that is about to change. The indicators are kind of mixed however.
The Japanese 10-year government bond yield has been in a negative yield for 2016. It stands to reason that the Japanese NIKKEI 225 equity index might have performed better than it has; but it hasn’t. So, if the thinking is that negative yields will push money out of the debt market into equities, there is no evidence of that in Japan. Same thing applies to Germany until maybe this week.
About a week after the BREXIT vote on June 23, I observed that negative German yields had continued to fall, but this week they lifted sharply and even turned positive. Closing this week at +0.01, the yield on 10-year German bonds have risen from a negative -0.189 a couple days ago. At the same time, the DAX 30 equity index seems pumped, up +4.5% this week.
Same scenario seems to be happening in the US and, to a lesser extent, in the UK. It seems to me that central bankers have started to cause money to move into equities, and that my friends might soften the Gold market for a while.
Have not taken a firm position for portfolios yet, but I will. I did give you a heads-up a week ago on the Airlines, and this week the Airlines Index ($XAL) soared +8.5%.
So, my head is getting back into the game. I’m excited.
Regarding BREXIT, I received an email from a Brit friend who is Executive Chair of a very large and important European company, mostly writing in reply to my condolences of the tragedies in Europe this week. What he remarked about BREXIT was spot on, and should be informative to all of us, so I thought it a good thing to convey his comments here.
Bill, Yes, we are going through a difficult period over here right now. France is unfortunately suffering from open borders and playing host to former colonies just like we have done in the UK. It can happen anywhere.
Worse still I have just got up to find that Turkey has suffered a coup overnight, this is very dangerous as Turkey is seen as the balancing factor in the ME/East Med region and is host to US Forces in the Med.
As for Brexit I voted for out so am happy with the result. I have no problem with Europe, my beef is the bureaucracy and corruption in Brussels where I have had a lot of direct dealings over the years and continue to do so today.
…
Back in 73/75 I voted for a Common Market, not a Federal Europe with unelected and unaccountable technocrats telling me what the laws and rules of my country are going to be.
I have been writing Daily Lessons about capital markets, but let this be a lesson about life. Things of importance are happening in our world and its time we seek a better understanding of them.
Regarding the blog, I can report that the page views and my mail in-box are both growing daily. It’s a good feeling.
Spread the word.
/Bill
