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The artist formerly known as Prince once sang that he was gonna party like it’s 1999. After all, when it’s “two thousand zero zero, party over, oops out of time!”
But today’s bond holders are much more ambitious. They’re partying like it’s 1746! As in, more than two and a half centuries ago.
I say that because in the wake of the European Central Bank’s latest policy gambit, yields on the benchmark French 10-year government bond just fell to 1.65 percent. That is the lowest level since 1746, according to new research from Deutsche Bank.
In Italy, 10-year government bond yields just sank to 2.76 percent — the lowest level since early 1945. Except for that one brief period, yields are the lowest since at least 1808.
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| Spain is still mired in a housing slump that mirrored the one we suffered in the U.S. |
And Spain? The country that almost went broke a couple years ago … that still faces record-high unemployment and incredibly anemic growth … and that is still mired in a housing slump that mirrored the one we suffered here?
Well, naturally amid all that risk … its benchmark 10-year yield just sank to 2.6 percent. Not only is that below the benchmark sovereign yield on U.S. Treasuries, it’s also the lowest since at least 1789. You know 1789 don’t you? That was when George Washington became the first president of the U.S., and when the French Revolution began.
Look, I’ve seen a lot of market swings and a lot of strange things in my 17 years of following the capital markets closely. My mentor, Dr. Martin D. Weiss, has seen even more over the decades he’s been tracking interest rates and government bonds.
But while neither of us were around in the 1700s to swap stories with Washington or eat crepes with Robespierre, I think it’s fair to say this extreme bond market complacency takes the cake. And as I’ve noted, it’s not just the bond market where investors are napping. The “Sound of Silence” (as the Financial Times dubs it) can be “heard” everywhere — from currencies to bonds to stocks to commodities.
There are a few ways you could think about all of this.
An extreme optimist might say: “This is great! The central banks of the world have slain volatility forever! I want to buy everything I can get my hands on.”
An extreme pessimist might take the opposite tack and say: “This is terrible! The central banks of the world have gone nuts! I want to sell everything that isn’t nailed down!”
Me? I was never in the first camp, and I’m not … yet … in the second. But considering the multiple disasters fueled by overly easy central bank policy in the past couple of decades, I definitely lean toward the latter intellectually. The real question is timing … knowing when the trend is going to stop being your friend.
When it comes to bonds, I simply don’t see the value in longer term Treasuries here. Call me crazy, but yields at 268-year lows just don’t sound all that attractive. So I would still avoid almost all longer-term bonds.
For stocks, I’ve stuck with highly rated names in powerful sector bull markets for several quarters now. Those companies have delivered nice gains for subscribers to Safe Money Report, and if you’re interested in getting more specifics, all you have to do is click here or call 800-291-8545.
But I’ve started taking profits on a handful of positions, getting more selective with new recommendations, and putting some stop losses under a handful of stocks with big gains. I think the extreme levels of complacency we’re seeing, not to mention the rapidly overheating boom in takeovers or the explosion in high-risk corporate lending, are all yellow flags.
It doesn’t mean the rally has to end today, tomorrow, next week, next month, or next quarter. But it does mean we have to be more wary of a potential, future meeting with the guillotine!
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Great article.I wasn’t aware that rates were this low in Europe.Some day,these bankrupt govts aren’t going to be able to lay all problems onto their fiat currencies.These currencies are going to crash.Who knows when,but it may be sooner than many expect.