How bad do things have to get before you’re willing to lose money just to keep your capital safe?
This sounds crazy to you and me. And until recently, it was.
But as we all saw interest rates come down after 2007–09 globally, it’s not that uncommon to see billions of dollars tied up in bonds, and for it to cost money to keep it there.
Look at a place like Germany. It’s probably one of the stronger countries in Europe. Yet to lend, the German government will not require an initial outlay, but a string of costs along the way, just to have your money tied up.
Below is the yield of a 10-year German government bond…
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The negative 0.01%…that’s the return you’ll receive on your money, assuming you bought this bond and held it for 10 years.
Wouldn’t it be wonderful if it worked like this for us too? Imagine walking into the local ANZ or CBA branch, asking for a loan and instead of making repayments, you get paid.
Just to put it in perspective, this is the situation for billions and billions of dollars.
How bad do things have to get?
Away on a mission…
By the time you read this, I’ll already be in the air.
From Melbourne to Los Angles and then Los Angeles to New York.
I’ve been extremely lucky to go on this mission. My aim: to gather as much information from some of the best minds in finance today.
On the Tuesday, I’ll be attending the 2019 Grant’s Interest Rate Observer Conference.
Grant’s, for those of you who are unfamiliar, is one of the world’s chief investment letters on interest rates and monetary policy.
James Grant himself has had an intimate relationship with central bankers and monetary policy throughout his professional life.
After getting out of the navy, Jim had a series of jobs; first a clerk at the New York bond desk, then working the financial desk of the Baltimore Sun…
Then, in 1975, Jim found himself at Barron’s detailing the ins and outs of the financial world. But about eight years in, he decided to give it up and go out on his own.
‘Well, the world doesn’t have enough to read!’ Jim later said. So he worked for five years to get Grant’s off the ground.
Today, the letter is a favourite among hedge fund managers, traders, market commentators. Even our very own publisher, Kris Sayce, enjoys some quiet time with the newest issue of Grant’s in his hands.
There on the day, I’ll be hearing from names like Bob Farrell (former head of Merrill Lynch), John Hughes (founder of the US$500 million Quantum Capital Management fund), and André Jakurski (founding partner of global investment group JGP Global), among others, giving their views on markets, stocks and bonds.
And the warm bodies I’ll be sitting next to will be just as exciting as the speakers will be. Giants of the financial world, people like Tom Gayner, Stanley Druckenmiller and Bruce Greenwald have all attended and spoken at Grant’s conferences.
I wouldn’t be surprised if all three were in the crowd on Tuesday, sharing their ideas and viewpoints.
Reporting back Friday!
I’m really expecting it all to be a mixed bag.
There’ll be the bulls and bears. There’ll be insights I’ll share with you about interest rates, central bankers and different stock ideas.
I think, now more than ever, information like this is something you, dear reader, need to know. If you look out at the world today, you see Trump goading the Fed to lower rates. You see the Reserve Bank of Australia steadfast on their decisions, but are yet to rule out lower rates in the months to come.
But it’s more than that. Central bankers’ manipulation of the price of money has led to the deformed financial world you see today.
Asset prices are higher. Growth is nowhere to be found. And any drastic event could be the temporary ruin of us all.
Jim said more or less the same thing in an interview with CNBC at the end of last year…
‘I think what we’re seeing is the evil fruit, the manipulation of interest rates, by the world’s central banks. You have had ten years, of manipulation of the most critical price in capitalism. And it has distorted very nearly everything that has traded.’
Having some sort of idea, some insight as to what’s going on, what’s happening and what could happen next could not only save you the stress of not knowing…it could also save you thousands of your invested capital.
I doubt the silver bullet will be: buy gold. I will be extremely surprised if it is.
But I’ll report back everything I find, the insights, ideas, predictions and stock ideas on Friday.
Editor, Money Morning
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