Seven Lean Years? Done in Seven Minutes

In Genesis (41:27), Joseph interprets Pharaoh’s dream of 7 fat cows followed by 7 lean (and apparently, ugly) cows, as foretelling the coming feast and then famine, enabling Egypt to prepare for the coming 7 lean years by stockpiling reserves.

Yesterday, the 10-year German bund leaped 12 basis points (see Graph below), along with a surging euro following the weak US GDP report. Now, 12 basis points is a big move, but we’ve seen bond yields move by that magnitude before. What is different about this time is that there is no yield to begin with, so yesterday’s move in the bund wiped out 7 years (!) of income.

If investing at near-zero yields for 10 years is rational, it will prove to be the worst decade for investors since the bubonic plague swept across Europe in the mid-14th century (ok, I made that up; but it could be right). But I’ll bet that it is not actually a rational investment, and monetary policy is distorting all kinds of prices and investment decisions.

• 8 May, 2024

  Beach Reading

  I'm happy to go to the beach year-round, but it's now really becoming beach weather, so I have five new book suggestions ...

• 9 Dec, 2014

  Deflation? Not US

  The dramatic (40%!) drop in oil prices has caused some hysteria in the media about the rising risks of deflation. After ...

• 25 Aug, 2015

  Jolt

  Two weeks ago (13 August, No Panic (Yet)) I noted that the renminbi devaluation was officially described as a modest ...