The Mock Turtle tells Alice (in Wonderland) and the Gryphon his sad life’s tale. By Sir John Tenniel.
If I borrow from you, who pays who the interest? There seems to be a borrower and lender mix up.
“Well, I never heard it before,” said the Mock Turtle; “but it sounds uncommon nonsense.”
It was an Alice in Wonderland week. European countries, companies, and entrepreneurs were getting paid to borrow money, and ordinary Joes with money in some European banks got letters saying the banks would be charging to hold their money. The New York Times reported:
“The most profound changes are taking place in Europe’s bond market which has been turned into something of a charity, at least for certain borrowers. The latest example came on Wednesday when Germany issued a five-year bond worth nearly $4 billion with a negative interest rate. Investors were essentially agreeing to be paid back slightly less money than they lent.
Bonds issued by Switzerland, the Netherlands, France, Belgium, Finland, and even fiscally challenged Italy also have negative yields. Right now, roughly $1.75 trillion in bonds issued by countries in the eurozone are trading with negative yields which are equivalent to more than a quarter of the total government bonds…”
At the end of February, many European stock markets were showing high single-digit to low double-digit gains for the year.
Meanwhile, back in the United States, the background report that supported Fed Chair Janet Yellen’s semi-annual testimony before Congress highlighted the effects of the Fed’s EAT ME cake – also known as quantitative easing – which left its balance sheet at about $4.5 trillion (up from about $1 trillion in 2008). Barron’s speculated the effect of an unexpected rise in interest rates could negatively affect the Fed’s bond holdings with maturities greater than 10-years. “If long-term rates do rise faster than anyone now anticipates, the Fed may run into difficulties of navigation that could prove a tad destabilizing to the economy.”
Data as of 2/27/15 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 (Domestic Stocks) |
-0.3% |
2.2% |
13.5% |
15.5% |
13.5% |
5.8% |
| 10-year Treasury Note (Yield Only) |
2.0 |
NA |
2.6 |
1.9 |
3.6 |
4.4 |
| Gold (per ounce) |
0.5 |
1.2 |
-8.9 |
-11.8 |
1.7 |
10.8 |
| Bloomberg Commodity Index |
0.7 |
-0.9 |
-22.4 |
-11.5 |
-4.9 |
-4.1 |
| DJ Equity All REIT Total Return Index |
-1.2 |
2.9 |
22.8 |
15.0 |
17.2 |
9.2 |
S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in this index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Borrower And Lender Mix Up.
Sources:
https://www.cs.cmu.edu/~rgs/alice-X.html
http://www.nytimes.com/2015/02/28/business/dealbook/in-europe-bond-yields-and-interest-rates-go-through-the-looking-glass.html?ref=business&_r=0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-02-15_NYTimes-In-Europe_Bond_Yields_and_Interest_Rates-Footnote_2.pdf)
http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, then “Equities rally in February,” and scroll down to Global Stock Market Recap) (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-02-15_Barrons-Chart-Global_Stock_Market_Recap-Footnote_3.pdf)
http://online.barrons.com/news/articles/SB51367578116875004693704580479953380031666 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/03-02-15_Barrons-Shedding_Light_on_the_Feds_Brave_New_World-Footnote_4.pdf
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