Markets “In a Nutshell” for June 11, 2019

Investment Week at a Glance

Stocks rebounded higher last week. The Dow Jones Industrial average jumped 4.7% while the S&P 500 rose 4.4%. The New York Stock Exchange Composite (2,000 stocks) gained 4.1%. The “average investor’s index” (Value Line index) was up 3.9%. Foreign stocks (DJ Global ex U.S.) were up 2.5%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 2.08%. (Data sources: Barron’s Financial, Wall Street Journal)

Say goodbye to higher interest rates?

It was just a few short months ago that most analysts agreed that interest rates were headed higher. Savings accounts, bank cd’s , and other conservative investments were finally, after 10 years, paying acceptable rates. We were buying 3% annual interest cd’s and only having to go out to 3 years maturity. And our short term bond portfolio (called Currency Complement) was experiencing rich near 4% yields. Well how quickly things change. As an article in Barron’s Financial (6/10/19) points out, most analysts now expect rates to drop this year. If so this could mean a hit to savings rates but a benefit to stocks and real estate.

How about negative interest rates?

We in the U.S. have yet to experience “negative” interest rates (where the lender actually has to pay the borrower interest!) but negative rates abound in Europe and Japan. An article in the 6/10 Wall Street Journal states that as much as 20% of the $55 trillion global bond market is negative yielding debt. Crazy as it sounds. So who in their right economic mind would buy negative debt? Well, most of has been bought by the governments or central banks of the respective countries. To give an example, an investor in a 10 year Japanese bond (which has an annual interest rate of negative 0.13%) would have to pay the Japanese government interest every year.

What’s it cost to have lunch with Warren Buffet? $4.6 million

Every year Warren Buffet raises money for charity by auctioning off a lunch. This year set a record as cryptocurrency CEO Justin Sun won the lunch with a $4.6 million bid. Interestingly enough, Mr. Buffet has in the past called cryptocurrencies “a gambling device” and “not investing.” Maybe Mr. Sun will change his mind?

Quiz:

According to aforementioned Bloomberg interest rate list, which of the following country pays the highest interest rate on their 10 year government bond?

a. Brazil

b. United States

c. Mexico

d. India

Answer is below…

 

Have a good week!

 

Answer to quiz:

a. Brazil at 8.14% annual interest rate