mousepad wrote:shortonoil wrote:housemouse said
But how? To receive $$ you need to ship goods or services.
How? Investor sell their foreign sovereign bonds, and buy US Treasuries, and other US assets. The US Treasury bond is the only G7 bond that now pays a positive coupon. 2% on a relatively safe 30 year Treasury is better than -0.5% on a German Bund. Money goes where it brings the best return, and that is now the US.
Is that true? Can somebody who understands more than me about all this financial stuff comment on this, please?
mousepad, I've been investing for nearly 40 years now, and was raised in a household where things like frugality, investing, spending wisely, etc. were drilled into our heads by two depression era parents. I've read a pretty fair amount of books on investing.
I'm NOT in the financial industry and have not taken the tests to become a CFA (Certified Financial Analyst, etc., though in the 80's, I did read the book stock brokers read to prepare to pass the required test for that position.)
So I'd say I know enough about liquid mainstream markets enough to comment, re your first question above.
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I'd say he's partly right. Which is true of many of the things he says on this site.
For absolute yield, no question, the over 2% yield advantage of the 30 year US Bond against many foreign long term bonds such as various western European, Scandanavian, etc. with negative yields will look attractive to many. Especially since (certain Trump idiotic comments aside), the US has always been really good about paying principal and interest on their treasury paper.
On the last sentence, he's wrong. Leaving out the concept of risk adjustment is nonsensical. People aren't accepting negative yields in places like Switzerland because they're all just stupid. When investing, it's ALWAYS a trade-off between (perceived) risk, and return. The more return an investor is seeking, the more risk they must take).
For one obvious example: People have to accept plenty of short term volatility (i.e. risk) to invest in the US stock market and earn a long term real (after inflation) return of over 7%, so many choose to leave much of their money in nice "safe" bank accounts and have no volatility -- and earn a real return much closer to 0%, especially after taxes on the interest. After several decades, the people in the stock market had MUCH better returns, but they had to leave the money alone and endure all those decades of a stock market that can move 50% in any given year.
Money, in a free and liquid market, goes where investors BELIEVE they will receive the best RISK ADJUSTED return. So, ALL OTHER THINGS BEING EQUAL, the 2%ish yield on the US 30 year bond looks more attractive than the negative German Bund yields.
But they're not actually completely equal. DIfferent countries -- different risk profiles -- and the bond markets are smarter at ferreting out all the risks than either short or me or any other individual investor. Of course, if investors overall believed one piece of such paper were much better than the other, they would arbitrage (trade to get the better overall return) away the difference. So shorty claiming the best yield "wins" is just NONSENSE.
(For example, there is a reason that yields get HUGE on currencies that are in trouble. Happened in Greece a while back, when it was at default risk. Happened in Puerto Rico a while back, and they're in total chaos with huge defaults happening. Zimbabwe hyperinflation completely destroyed their currency in the 00's. Taking the "high" yield there would have led to total losses. Argentina has a long history of hyperinflation risk, and it looks like they're getting close to that again.)
Things like relative bond scarcity, confidence in the underlying currency, issuing country's future inflation rate, economy, etc. influence what yield people are willing to accept.
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Do your own research / checking before making investment decisions. There are LOTS of opinions (including short's) on the internet. Given the low bar (being able to type) to put one's opinions on the internet, healthy skepticism about ANYTHING you read on the internet is warranted. Including anything I say, of course.
I hope this helps a bit.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
