This past week Germany sold five-year debt at a negative yield for the first time in history. Read, wash, rinse and repeat. A negative yield for the first time in history. The problem globally is unmanageable debt. An investor gets to pay Germany money for five years to hold his money. Come on – we are living in highly unusual times.
That investor could decide that an investment in a five-year U.S Treasury note paying 1.38% is a better deal. Think about the implications of a major developed market player paying negative rates. Think about it in terms of global capital flows. What does is say about growth, risk, desperation?
Would you invest your money in German paper earning a guaranteed negative return or would you invest in a U.S. Treasury note earning a positive 1.38%? For now, advantage U.S. dollar. Money will flow to where it is treated best. I wrote about the problem in Forbes in a piece titled Creative Destruction and Managing the Risk of Global Debt.
Global QE is running out of runway. Debt has increased, not decreased. Twenty countries have cut interest rates in 2015. It is an all-out global race to debase. Today let’s take a look at the hard evidence signaling slowdown. My personal view is that slowdown would not be as much of a problem if valuation measures were low. They’re not: by just about every measure the market is overpriced, overbought and over believed.
What can you do?
Steve Blumenthal
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.
