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a-bleak-future-for-long-term-government-bondsCan you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.
Buffett doesn’t really offer any alternatives, except to warn:
Some insurers, as well as other bond investors, may try to juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers. Risky loans, however, are not the answer to inadequate interest rates. Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim.
https://raymondjames.com/davidolnick/david-chart-of-the-week/2016/11/18/the-move-indexMany of us are familiar with the VIX Index, commonly referred to as the “Fear Index”. The VIX Index is a measure of “fear” as that relates to equity markets and typically rises during periods of falling prices, sometimes sharply during more precipitous declines.
Did you know that there is a similar index that measures fear within the bond market? That index was developed by Merrill Lynch and is referred to as the “MOVE” Index. The index rises as concerns grow that interest rates are on the march higher. The index will rise more sharply when there are fears in the market that rates may be headed significantly higher as was the case during the 2013 Taper Tantrum.
Bloomberg Opinion Piece:
At a time when most major companies are working on plans to cut their carbon emissions, one of the darlings of green investing is working to increase its emissions footprint.
You read that right. Thanks to its explosive expansion in China and a planned car plant in India, Tesla Inc. is in the process of not just increasing the total sum of its emissions—a pretty inevitable consequence of growth in our current carbonized world—but increasing the amount of pollution each of its vehicles generates, too.
I'll play "chart it". Give me 5 bond fund tickers that you're not happy about over the past 10 years. They don't have to be anything you hold or have held. What would you prefer to be charted as a baseline, the comparative? A balanced fund, a blended equity fund?
but for the last 10 + years it was a bad mistake
Existing nuclear plants have relatively low operation, maintenance, and fuel costs compared to many fossil fuel plants; however these routine costs still make nuclear power economically uncompetitive in comparison with natural gas, wind, and solar.
New nuclear plants are another matter altogether; their continuing high construction costs make them uneconomical. Between 2002 and 2008, cost estimates for new nuclear plant construction rose from between $2 billion and $4 billion per unit to $9 billion per unit, according to a 2009 report by the Union of Concerned Scientists. In reality, even those astronomical projections have been surpassed. The two new units at the Vogtle Plant in Georgia, the only new nuclear construction in the United States, are now years behind schedule and projected to cost more than twice their original budget of $14 billion. Similarly, it was estimated that Duke Energy’s proposed Levy County Nuclear Power Plant in Florida would cost $5 billion, but projections ballooned to $22 billion. The project was canceled in 2017, and Duke Energy decided to focus on solar energy expansion instead.
Reactors also typically require a long period of planning, licensing, and building. The 2019 World Nuclear Industry Status Report (WNISR) estimates that since 2009 the average construction time for nuclear reactors worldwide was just under 10 years.
The WSINR report also estimates that the cost of generating nuclear energy ranges between $112 and $189 per megawatt-hour (MWh), while solar power costs between $36 and $44 and onshore wind power comes in at $29 to $56.
It seems like an alternative to a bank for Germans would be a Money Market fund, perhaps in a brokerage account.
Unless the MM will also charge to hold your money.
David
FDRXX Summary Prospectus(a) In order to avoid a negative yield, Fidelity Management & Research Company LLC (FMR) may reimburse expenses or waive fees of Fidelity® Government Cash Reserves. Any such waivers or expense reimbursement would be voluntary and could be discontinued at any time. There is no guarantee that Fidelity® Government Cash Reserves will be able to avoid a negative yield.
Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest.
Germany’s biggest lenders have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away.
The pandemic has changed the equation. Savings rates skyrocketed with consumers at home. And huge relief programs from the ECB have flooded banks with excess deposits. Banks also have used the economic dislocation of the pandemic to make operational changes they have long resisted.
According to price-comparison portal Verivox, 237 banks in Germany currently charge negative interest rates to private customers, up from 57 before the pandemic hit in March of last year. Charges range between 0.4% and 0.6% for deposits beginning anywhere from €25,000 to €100,000.
The ECB’s deposit rate, which it charges banks, is minus 0.5%. The central bank has signaled it is unlikely to change that level anytime soon.
Banks in Germany are particularly hit by negative rates because Germans are big savers. About 30% of all household deposits in the eurozone are in Germany, according to the ECB. Last year, deposits in the country rose 6% to a record €2.55 trillion as people became wary of spending under the pandemic or simply had nowhere to spend, with restaurants closed and travel restricted.
In Denmark, where interest rates were cut to below zero two years before the eurozone, banks have gone from charging wealthier clients to smaller ones over the past year. The Danish central bank estimates about a quarter of the country’s depositors are currently being affected.
Nordea Bank Abp recently lowered the deposit threshold for a 0.75% charge to 250,000 danish krone, equivalent to $41,000, from 750,000 danish krone as the pandemic will likely prolong the era of negative rates.
The flip side for customers there, is that in some cases, while they pay to deposit money, they don’t have to pay anything to borrow. Nordea in January started offering 20-year mortgages at 0%.
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