Negative Interest
Stocks were off today the entire day as US industry continues to disappoint with poor financial results. FEDEX, for example, has reduced its forecast as shipping has fallen off in the last month alone.
Bonds was where the action was. While the 10 Year Treasury showed some gains (decrease in interest rates), the short end was amazing. The 4-week bill sold a 0% – that’s ZERO percent interest – NO INTEREST. Even more amazing was the 3 month bills selling at NEGATIVE interest rates. This hasn’t happened much before in the US. It happened back in the Great Depression, and it happened in Japan in the 90’s.
Everything else (gold, the Dollar, oil and gasoline) moved sort of sideways
In the news today….
The number of Pending Sales of houses fell in October 0.8%. This continues to be bad news, and just adds to the continuing downdraft of housing values. Fewer houses being purchased means a higher inventory, and results in lower prices as there is more competition for any buyer’s dollars.
The US Energy Information Administration has forecast that we will be using 50,000 barrels/day less oil in 2008 that previously. More ominously (for our economy) it is predicting that we will be using 450,000 barrels/day less in 2009. How this works its way into the price of oil and gasoline depends on the supply side of the equation. OPEC is not very organized and doesn’t cooperate within itself well, so who knows what the future really holds for oil prices. Technically oil has support at $40/barrel, but if you see if falling into the $30’s, you know it will fall a lot further.
Tonight’s Dinner Conversation…..
What does it mean when interest rates go negative, or to zero interest? What causes this to happen? The cause is easier to explain – people just wanted to buy these US Treasury Bills AT ANY PRICE. The price translated into negative or zero interest. They wanted to buy at any price because they want SECURITY as we go into the end of the year, and they don’t know what’s going to happen.
What could happen? That’s your homework for tonight.
Here are Today’s numbers:
Dow Jones 30 Industrial – 8690 (down 243 points)
10 Year Treasury Bond – 2.67% (down 0.07%)
Euro – $1.2918
Gold – $774 (up $5)
Oil – $42.07 (down $1.64)
Gasoline – $0.94 (down $0.03)
Tom,
Good questions regarding what does negative or zero interest rates mean for us.
Japan had similar interest rates for much of the last 25 years as well as declining RE prices too. I think we are in store for much of the same deflationary economic path as Japan post 1989.
One interesting thing is that Japan is a creditor nation and is also a nation of savers. We on the other hand are not. That’s a major difference which will play out over time.
To answer your questions directly.
It means Treasuries are the new bubble and deflation is not just an idea but here to stay for a while.