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Old 08-02-2019, 12:20 PM   #41
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I myself have increased my precious metal holdings to 8.25 percent of my portfolio and am trending towards my top allowed to myself of 10 percent. But there could be decades with no bond collapse and interest rates could stay right near zero and the stock market could continue a 4-9 percent annual climb.

The interconnected pieces would be decimated by a bond market collapse. Lets go with 14 trillion of bond at negative yield, if just those rose to a 6 percent yield you are looking at losing somewhere between 7 trillion and 12 trillion dollars, that was considered the safest of the safe in investments. The add on to "risk" asset losses would be in the 30-40 trillion dollars. There would just be an economic reset.

Personally, I am starting to think FED is not convinced there is an issue and they can get the world back to "normal" rates. Soaring inflation as a solution is not an answer as the bond market losses are just too great.
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Old 08-02-2019, 12:26 PM   #42
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Originally Posted by Marc View Post
US Treasury debt is around 2% more than German debt. With a $22T total debt, that is an extra $440,000,000,000 of interest charges each year (gross simplification). As the US dollar has been holding its own against most currencies last few years; it is not terribly risky for a foreigner to invest in US treasuries. Therefore, I truly believe the US is trying to talk down interest rates in order to cut size of budget deficit.

Does this make sense?

Marc
Since late 2017 China has sold about 100 billion of US Treasuries and bought Gold. Japan has sold about 200 Billion and bought Japanese stocks and 80% of the Japanese Bond Market, the FED allowed another 500 -750 billion to roll off from their portfolio, the result is we have higher interest rates in order to sell the treasuries. FED has halted their selling, and did not in my opinion cut the interest rate enough this week, we will see how much the market lets them know they don't like that..... Chart is of total debt with negative yield. Interest rates, and therefore borrowing is having almost no negative economic impact on government financing as the growth in interest is far slower than growth in debt, indeed in many countries it drops as they refinance. As they issue more in the future they actually begin to take in revenue.


German 30 year bond over recent months

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Old 08-02-2019, 12:55 PM   #43
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And the interesting fact is that the leading negative yield country, Switzerland has increased the ownings of ETF's in the US stock market to 92 billion dollars up from 20 billion in 2016. Swiss one year Swiss Treasury is negative 1.1% per annum
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Old 08-03-2019, 07:14 AM   #44
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The $14 trillion in sub-zero bonds grew very quickly from just $6 trillion in October 2018.

An article in the Washington Post answers the following questions:

Quote:
1. How can a bond have a negative yield?
2. Why invest in a bond that will lose you money?
3. How much is being bought?
4. Why is this reason for worry?
5. Who benefits from negative rates?
6. Who gets hurt?
7. How did we get here?
8. Why have negative rates lasted so long?
9. Where’s all this heading?

See: The Black Hole Engulfing the World’s Bond Markets
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Old 08-03-2019, 07:32 AM   #45
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Draghi, the President of EU Central Bank, just said "this outlook is getting worse and worse, ... it’s getting worse and worse in those countries where manufacturing is very important.”

They are looking to do more stimulus. More negative interest rates?


This shows why Draghi was scared.


Chart linked from https://markets.businessinsider.com/...9-8-1028407378



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Old 08-06-2019, 11:14 AM   #46
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Assuming this negative interest rate contagion will spread to the USA markets. What is actionable that one can do?
1. Buy original purchase TIPS (so you at least get your principal)?
2. By really long CD's or BONDS now?
3. Lower Bond allocation (hate to change based on "timing the market")?

What is actionable?
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Old 08-06-2019, 11:28 AM   #47
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Originally Posted by BeachOrCity View Post
Assuming this negative interest rate contagion will spread to the USA markets. What is actionable that one can do?
1. Buy original purchase TIPS (so you at least get your principal)?
2. By really long CD's or BONDS now?
3. Lower Bond allocation (hate to change based on "timing the market")?

What is actionable?
Just for the record, negative interest rates will not affect TIPS' inflation protection. The point of the negative rates is to forestall deflation, which would have an effect. Personally, I think we will see helicopter drops (https://www.investopedia.com/terms/h...opter-drop.asp) before we see deflation in the US.
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Old 08-06-2019, 07:39 PM   #48
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I think its all going to come down to we (the world) blame this all on China....

In their quest to beat out everyone with manufacturing they are slowly but surely putting every body else out of business...

when countries can't manufacture goods they can't make money and they go further in debt..

To get out of bad debt they issue 100 year bonds that don't cost them in interest payments...
when the majority of the world countries are in contraction mode and they seem to think 100 years of it to come our way. ( or the politicians/bankers know they won't be around in 100 years to explain what is really coming our way )

It won't take long and the only countries left fighting will be in trade talks with China in an attempt at saving the few left with some manufacturing capability.

Will the US go to negative rates... I don't think we will go that far but I bet it gets close... going to be some interesting times coming soon...
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Old 08-06-2019, 07:46 PM   #49
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I don’t think it’s quite that simple. Robots can, and increasingly do, manufacture stuff here just as cheaply as in China. And there are lots of benefits to having it done here where there are property rights and IP laws vs. China, which is a communist kleptocracy.
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Old 08-06-2019, 08:16 PM   #50
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Here's a good article on negative yielding debt worldwide:


Quote:
Every day brings new indications that the financial world is going from already nuts to even nuttier. According to Bloomberg, the total amount of bonds outstanding globally that are trading with a negative yield exceed for the first time $15 trillion. This includes government and corporate debt, and also some euro junk bonds that have joined the elite group
https://wolfstreet.com/2019/08/06/fi...yielding-debt/
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Old 08-07-2019, 07:43 AM   #51
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Originally Posted by BeachOrCity View Post
Assuming this negative interest rate contagion will spread to the USA markets. What is actionable that one can do?
1. Buy original purchase TIPS (so you at least get your principal)?
2. By really long CD's or BONDS now?
3. Lower Bond allocation (hate to change based on "timing the market")?

What is actionable?
OK if you assume US treasuries are going negative you buy 30 year bonds. German 30 year Bonds are up 25% YTD with rates going from 0.87% to -0.129, this is why a mania develops to buy long term bonds. German Bunds at 30 years and negative rates have earned a greater return than the S&P500 this year. At the present time US 30 year treasuries are 0.05% away from their all time low. Almost every other major company are at all time lows for their interest rates. New Zealand cut rates 1/2 point last night because their currency was getting too strong. The FED did not realize what they needed to do when they cut only 1/4 point.
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Old 08-07-2019, 08:43 AM   #52
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even more fun this morning...
https://www.cnbc.com/2019/08/07/us-t...ectations.html
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Old 08-07-2019, 08:54 AM   #53
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what is actionable ... I don't think the foreign bonds are the correct instruments for individual investors... those are for the central bank boys to handle... but interest rates gong down affect ALL bonds... so an action in the bond market is corporate bonds where you need to be informed of the actual bond price, the duration, the coupon rate, is it callable ...ect..ect... if you buy a corporate bond today... and interest rates go further down then the bond value (what it costs to purchase) is going to go up.... so if hold that bond then you can sell the bond and get the difference in the price you paid today and how much you sell it for when the interest rates dropped... and of course during the time frame you hold the bond you also get to keep the accumulated coupon interest at the time of sell... so is there money to be made... sure there is... its almost a given the way the bond market is working right now...
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Old 08-08-2019, 04:58 PM   #54
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https://www.msn.com/en-us/money/news...ory/ar-AAFtb2Z

And now in Denmark you can get a mortgage with a -0.5% interest rate! Yes the bank will pay the seller full price and you can pay back less than the bank paid. Instead of paying $965 a month on a 100K 3% loan 10 year loan you can pay $812 a month for 10 years, saving 2.6% in principal over the course of the loan.
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Crazy European Bond Market
Old 08-08-2019, 06:46 PM   #55
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Crazy European Bond Market

End times for the cycle are probably near when this kind of Bizarro World stuff happens. Remember how “negative earnings are good for tech stocks” was the belief circa 1998? How no proof of income was needed for mortgages circa 2007? Now there are mortgages that pay the borrower. Gimmeabreak. The sewage is building up behind the dam.
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Old 08-08-2019, 07:24 PM   #56
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^^^ It is worrisome, isn't it?

I remember that in 1999-2000, people talked about the New Economy, where you did not need old-fashioned brick-and-mortar businesses, and a lot of things could be done cheaper by high-tech companies via the Internet. Later, it turned out that service companies still need hard assets, such as Amazon's warehouses, Google and Netflix server farms, etc...

I don't think anyone knows how this negative interest rate is going to end. It cannot be good. It is not in anyone's book. Totally unprecedented.
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Old 08-09-2019, 09:10 AM   #57
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OK if you assume US treasuries are going negative you buy 30 year bonds. German 30 year Bonds are up 25% YTD with rates going from 0.87% to -0.129, this is why a mania develops to buy long term bonds. German Bunds at 30 years and negative rates have earned a greater return than the S&P500 this year. At the present time US 30 year treasuries are 0.05% away from their all time low. Almost every other major company are at all time lows for their interest rates. New Zealand cut rates 1/2 point last night because their currency was getting too strong. The FED did not realize what they needed to do when they cut only 1/4 point.
Thanks for this and the other ideas. The more I think about this, the more I think "this will not end well". It will be almost impossible for the US to maintain its interest rate level if the rest of the developed world is negative.
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Old 08-09-2019, 09:16 AM   #58
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As a for instance, I believe the Austrian 100 year bond, that was the reason for this thread is up over 20% from the start of this thread, really quite extraordinary, already 15 years interest in the last 3 weeks
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Old 08-09-2019, 09:26 AM   #59
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OK if you assume US treasuries are going negative you buy 30 year bonds.
That'll work while rates are going down, but it does require that we know when to sell the bonds. If the US eventually elects to not to keep decreasing rates but instead increases money supply (to keep the economy moving forward), would it not be safer to be in TIPS? If the bond bubble bursts, and even if inflation returns, the TIPS will still do okay, no need for precision timing. Sell them if it seems right, or hold to maturity and at least receive par value for 'em.
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Old 08-09-2019, 09:29 AM   #60
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... It will be almost impossible for the US to maintain its interest rate level if the rest of the developed world is negative.
+1 The seldom-mentioned fact is that the Fed does not operate in a vacuum. US rates that are above or below general world levels will attract or deter investment, especially the hot money that has been the bane of small country economists. For us, the hot money is less of a problem, but a strong dollar is. Like a stopped clock that is right twice a day, Trump is right on this one. A weaker dollar will increase US exports and deter imports. Over a longer period, it should also increase investment in US manufacturing capacity, though that investment may come from overseas.
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