Wednesday, January 7, 2015

Is the U.S. A Safe Haven for Investors?

Je tiens d'abord à exprimer mes condoléances à tous les Français pour la violence malheureux ce matin. Familles avec des victimes seront dans les pensées de ma femme, Jessica, et je ce soir.

Google, "The U.S. Debt Crisis," and you will see that the top two results have polar opposite headlines:

Exhibit A: America-has-conquered-its-debt-crisis-with-incredible-speed--Date: 4/21/2014

Exhibit B: The United-States-debt-crisis-far-from-solved: Date: 8/21/2014

As you know, I work in education.  I'm a Vice Principal at a high school and so my clientele is limited to students who are career trouble makers.  I have to guide these students on survival in a classroom.  Their skills shine out on the street; classroom decorum is their weakness.  I give all of my frequent visitors the "stay under the radar" talk.  These students stand out in class like a sore thumb.  They have moved the antenna of the teacher one too many times and so now for everything, they are at fault.  The "stay under the radar" talk begins with me telling these students what radar is first.  Then I tell them that their behaviors cause them to stand out, even though there are multiple students in the class misbehaving, talking, not paying attention, etc.  "You have to stay quiet and in your seat for at least three days," I tell them.

"Don't talk for any reason, unless you are called on to speak.  Don't get up to sharpen your pencil.  Don't get up to throw garbage away.  Make yourself invisible.  After a few days, your teacher will find someone else to yell at."

It works!  The student finally understands that even though there are other offenders in the class, he (most of the time it is a male) is the greatest of them all, and has to work to have the negative attention shift to another student.

The U.S. Debt Crisis is Flying Under the Radar

The headlines from September 2014 to the end of the year, and even to this day, were all concerning Europe, Japan, long-term bond yields, the ongoing bull market, and then...a little blurb about 5% GDP growth for the third quarter.  What happened to the supposed debt mess we are in?  Oh, that's right!  America is now the new safe haven for everyone's capital.

Apparently, a more consistent 3-4% GDP growth rate is sufficient to erase the multiple trillion dollar hole our country is in, fund our ongoing entitlement problem, and get us in the black again.  That's what buyers of the 10-Year U.S. Treasury are telling us!  Initially the decline in the yield (remember when it was over 3%?) was fueled by our own institutions and investors, and their insatiable demand.  The second leg of this race to the bottom is being run by foreign investors.  Japanese and European investors alike are happy to give our government their money for 1.9+% in return.  At this rate, by the end of the year, foreign investors will be paying us to park their money within our shores!  A negative yield for 2015?  Is it possible?

U.S. Treasury yield at 1.9540% today

How ironic!  How terribly ironic.  Uncle Sam is giving its creditors the middle finger right now for the fiasco of 2011...when the U.S. credit rating was downgraded.  Uncle Sam is rubbing his hands together saying: "Thank-you very much!"

Folks, from January 2013 through October 2013, the headlines were replete with the words, "debt-ceiling."  The new Congress started work just yesterday.  Apparently, we are confident that our newbies in office will help us avoid the next debt-ceiling crisis.

Meanwhile, Japan is dying.  Yea, Japan is literally dying people!  Apparently, they don't have sex over there.  Their towns are being populated by stuffed dolls.

Japan has more debt than we do and not enough young persons to work it off.  Europe is also aging and they may face similar demographic problems as Japan in the near future.  Where would the U.S. be without its lax immigration policies?  Japan should take a page out of the U.S. and invite foreigners, especially Latinos, to become Japanese nationals.  Yes, I said that.
On 10/28/14, Forbes reported that about a third of U.S. debt was held by foreign governments?

What's it now?  I tell you what, by the end of 2015, the pie chart will not look the same.

Think The Fed raising rates will mean an increase in the Treasury yield?  Think, again.  The Fed controls short-term interest rates.  The bond market determines the going price and yield for the U.S. Treasury.

Why is the U.S. the new safe haven for money? (Not in any particular order)

1) We are not near Russia.
2) We have sex, lots of it.  And we pretend to be tough on immigration, even though everyone knows our way of life can't do without it.
3) We make cool crap as opposed to crappy crap.
4) We made the right moves, capitalizing banks, adding liquidity, and keeping credit from drying up.  We did not do austerity as the one and only solution to the Great Recession as Europe did.  
5) We saved our natural energy deposits until the 21st century, exploiting those of other nations first.  6) We can somehow keep our debt problem under the radar.

Check out all the cool National Debt clocks in Real-Time!

Thanks for reading!

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