Markets “In a Nutshell” for October 8, 2019

Investment Week at a Glance

Stocks were down last week. The Dow Jones Industrial average dropped 1.0% while the S&P 500 fell 0.3%. The New York Stock Exchange Composite (2,000 stocks) fell 1.0%. The “average investor’s index” (Value Line index) was down 1.6%. Foreign stocks (EAFE index) slipped 2.3%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.51%. (Data sources: Barron’s Financial, Wall Street Journal)

Fears of Recession Hits

The Institute for Supply Management (ISM) reported last Tuesday its manufacturing index slipped to 47.8 in September, the second month in a row the index has recorded a below 50 level. Levels below 50 indicate a contraction in U.S. manufacturing activity. The 47.8 level was the lowest recording since June 2009 and sparked fears of recession.  The fact that the ISM services index came in below expectations (52.6 vs. expected 55.3) the next day stoked further fears. However by Friday fears abated as Fed Chairman Powell commented that the Fed is ready to do what is necessary (cut rates, print money) to keep the economy growing.

China and Russia Pile into Gold

Barron’s (9/16/19) reports that China and Russia have been big buyers of gold bullion in recent months as those countries look to diversify their foreign holdings away from the dollar and euro. Russia has built a gold position of 19.8% of its foreign reserves (foreign monies held by the central bank) while China has a 2.8% position and is looking to add more.

Looking for Higher Yields?  Go to 2119

With more than $14 trillion in global bonds yielding negative rates (and savings and checking accounts near zero), investors in bonds are pushed to take more risk either in the form of lower credit or longer maturity dates. According to Barron’s (10/7) a number of institutions have recently raised money by issuing very long term debt. Georgetown University has issued bonds maturing in 100 years (2119) at an annualized yield of 3.65% while Rutgers University has issued 100 year bonds at 3.87%. For those fearful of default, Barron’s points out that Rutgers has been around since 1766 as has never defaulted on debt.

Quiz:

Quiz:

Speaking of long term bonds, Danish energy company Orsted issued a long term bond in 2017. What is the maturity date of that bond?

a. 2067

b. 2117

c. 3017

d. never.

 

Answer is below.

 

Have a good week!

 

 

 

 

 

 

 

 

 

Answer to quiz: c. 3017, yep a thousand years.