The Germans issued $5.8 Billion (in US $s) of two year notes this week with a 0% coupon. That is not a typo as investors were willing to earn nothing for 24 months for the assurance of safety. Back on our own soil investors continue to buy bonds and are willing to accept 1.77% for ten year US debt. Yields set another low record for our country this month at the same time we are borrowing well in excess of what our government collects in taxes. This tells us that FEAR is running amok in the marketplace, and volatility will remain high.
Investors that decide to change their course during these troublesome times are highly likely to get burned. It is paramount to understand your time horizon and willingness to accept risk. Does the eurozone dissolve? We don’t know for sure what will happen across the pond, but the world operated fine before the EURO ever existed and we feel that in the long term things will work OK if it dissolves.
The other side of the investment coin is the equity markets (ownership of companies) that have suffered through two deep bear markets and continue to deal with a global financial crisis. These factors have caused the dividend yield on the S&P 500 to move higher than the yield on 10-year Treasuries for the first time in roughly a half a century. You can generate more income owning equities… this does not happen often.
As an investor, do you want to own companies or do you want to loan funds to companies/governments? We favor ownership.