I Just Learned What The World Needs Now Isn't Love, It's...

     1965. Jackie DeShannon's recording of Burt Bacharach's song 'What The World Needs Now'  is such a hit it's covered by Dionne Warwick two years later, and by Diana Ross in 1994. 

     2016. Germany's Finance Minister, Wolfgang Schauble tells the Central Banks of Europe and the United States what the world needs now is a healthy interest rate. He blames the ECB for the popular backlash against policies that have depleted the returns on savings of millions of Germans. Chancellor Angela Merkel's Christian Democrats and her coalition partners the Social Democrats are losing ground to  the populist Alternative For Germany movement. Herr Schauble is quoted as saying to ECB President Mario Draghi, 'Be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy.' 

     Add to the mix the news of the 10-year US Treasurys reported recently reported as 1.72%. This rate is below the consumer price index of 2.3%, so the real rate is -0.58%. A glaring contradiction of Ms. Yellen's claims about the non-existence of negative interest rates in the US. However, the US is not alone. Germany's 10-year yield is below 0.1%. Guy Haselmann, head of US interest rate strategy at Bank of Nova Scotia  expects the US 10-year yield to sink to 1.25% before the end of 2016 from a recent 1.72%, noting the previous low of 1.40% occurred at the height of the 2012 euro crisis. He also mentions the possibility the rate could test sub-1%.

     Bond declines explain a lot of what's happening in the markets at present. Stocks have been flat or slightly up, while gold is posting a 17% gain for 2016. When bond real rates go negative, the cost of holding gold evaporates.

     Zhiwei Ren, managing director and portfolio manage at Penn Mutual which hold $20 billion under management, said he would sell Treasurys if the 10-year yield hits 1.5%

     Central Bankers and government leaders converge on Washington, D.C. next week for the Spring meetings of the IMF. A real love-fest to be sure, but what the world needs now is prayer. And with an increase of 17%, I am glad I'm getting paid to save with gold. If you want to know how you can, too, I'm happy to tell you, but in the meantime...

 
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