In a recent conversation with colleagues regarding Austria joining the ranks of Mexico, the United Kingdom, and Ireland in the sale of a “mind-blowing” 100 year bond as commented by Bob Doll, the chief equity strategist at Nuveen Asset Management.
One colleague mentioned that since Doll said to “do a 100 year bond offering at 2% blows his mind – and highlights the risk in today’s bond market,” it seems like a pretty good case for active FI management using highly cost-effective and liquid ETFs!
I agree, the world is flooded with free money. Inflation is higher than 2% so the real cost of capital here is zero.
Who would buy these bonds?
No one in their right mind.
But how can they issue the bonds?
The central bankers will print the money necessary to buy the bonds. That’s what QE1, 2, 3… 100 is all about.
What are the problems with this?
Austria will do more deficit spending. Austrian people, rather all Europeans, will pay interest to the central bankers and the artificially or manipulated low-interest rates will be continued!
Where does this all end?
God help us all when the central bankers quit printing money and stop buying bonds. Interest rates and inflation will explode quickly.
So, how can investors diversify their stock portfolios into fixed income?
This is why I believe in diversified, short-term, liquid, fixed income ETFs, which is where iSectors’ Capital Preservation Allocation comes into play.