Our new zero-interest-rate world... American companies are raising European capital... Bond yields go negative... How to survive a zero-interest-rate environment... Why we like gold today... This incredible offer ends at midnight...
Welcome to a world of zero (and negative) interest rates...
We've been covering this topic at length in recent Digests. Central banks around the world are cutting interest rates... And today, we have nine major sovereigns with negative yields. The Wall Street Journal reports that 16% of global government bonds now sport negative yields.
Blue-chip companies like software icon Microsoft and consumer-products legend Apple are issuing long-term debt at rates below 1%. Swiss food giant Nestlé issued debt maturing in a little more than a year with a negative yield. In other words, investors are paying Nestlé to borrow their money.
Most of the negative sovereign yields are in Europe today. Certain durations of German, Swiss, French, and Danish bonds (to name a few) all sport negative yields. The European Central Bank just initiated quantitative easing, purchasing 60 billion euros of bonds a month, which is part of the reason yields are plunging.
And corporations are flocking to the European debt markets to tap cheap financing. This year, American companies have raised 11.65 billion euros of bonds, the busiest start since 2008, according to Bloomberg. And several blue-chip American companies hold European debt with negative yields. From Bloomberg...
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American firms are also turning to Switzerland, which is outside of the European Union. As we discussed in the January 15 Digest, Switzerland's central bank – the Swiss National Bank – pushed interest rates negative after it unpegged the franc from the euro.
Despite the negative rates, the franc still grew stronger... and yields remain depressed. More from Bloomberg...
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Yields are depressed and will likely stay low for a while. For one, there isn't much growth around the world today. And deflationary pressures (like the price of oil falling in half) are dominating the market.
Plus, thanks to quantitative easing, trillions of dollars of capital are looking for safety today. And that money is pouring into high-quality corporate and sovereign debt. As we've seen, investors are so desperate for safety – and apparently devoid of other opportunities – they're happy to pay a small annual fee just to make sure they get their money back.
In the February issue of Extreme Value, editor Dan Ferris answered the question that's on everyone's mind: What should you do in this low-growth, low-interest-rate environment? As he wrote...
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Mind you, these are the nominal bond yields. If you adjust the after-tax yields you're earning for inflation, you're likely losing money buying this debt...
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But high prices don't end with bonds. Investors are also bidding up stocks...
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This low-interest-rate environment can last longer than anyone expects. And while it's difficult for most people, you have to be patient. As Dan explained...
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While most of the stocks in Dan's investment universe are out of range, we are seeing value in gold stocks today.
We've spent a lot of time this year laying out the bullish case for gold. For one thing, zero-percent and negative interest rates are incredibly good for the precious metal. Non-believers often point to the fact gold yields nothing. But which would you rather: collect no income from gold, or pay Switzerland to hold your money? The answer is obvious to us.
Also, it's clear the global central banks have engaged in a currency war... They're all racing to debase their currencies in efforts of stoking inflation and boosting their economies. Gold acts as a safe haven against this monetary madness.
Plus, gold is rising against most major currencies today. As we wrote in the February 10 Digest, citing Steve Sjuggerud's True Wealth Systems...
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Porter echoed Steve's sentiment in the January 30 Digest...
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We always advocate holding a portion of your wealth in physical gold. But this is simply a savings vehicle... Think of it as cash, not as an investment. If you need a reliable source for purchasing physical gold, we recommend contacting Van Simmons at David Hall Rare Coins and Rich Checkan at Asset Strategies International. (We receive no compensation for recommending their services.)
We also recommend you invest a chunk of your portfolio – Porter says 5%-10% – in companies that own high-quality gold deposits or royalty rights on those deposits. If you can buy gold in the ground for cheap, it's like a free call option on the gold price (which we think is set to explode). When a gold rally starts, these companies can soar.
And nobody in the world is better at identifying these companies than our friend John Doody. His proprietary method for selecting gold stocks has returned 636% since 2001 – more than double the return of gold bullion alone. John personally used this method to amass an eight-figure fortune.
If you'd like to learn more about John and his strategies for gold-stock investing, we encourage you to act quickly. He's offering Stansberry Research subscribers a substantial 50% discount on his Gold Stock Analyst advisory until midnight tonight. Click here to learn more.
New 52-week highs (as of 2/13/15): Apple (
The mailbag filled up over the weekend with people sending in their thoughts on Porter's anti-solar argument. Do you feel strongly one way or the other? Send your opinions to feedback@stansberryresearch.com.
"Porter, thanks for taking the time yet again to lay out the case against solar. But I think you were too kind on Erik on two points. First, he basically flaunted the idea that half of his system was paid for by the rest of us – yes, even the 20% 'paid' by the utility comes out of our pockets. Yay! He's either a jerk or completely ignorant about where money comes from.
"Second, how about sharing what exactly his half of the system cost in the first place. Have those monthly checks paid him back yet? Will they pay him back before the useful life cycle of the cells diminishes? Maybe so, but then also please instruct him where to send our 50% share of those monthly checks." – Paid-up subscriber R.M. Minnich
"Porter, you are correct... most people who push for solar power know nothing of the big picture, i.e. the GRID. They only see their anecdotal segment, their own meter. And, those on the grid with PV are getting tons of kickbacks from us regular power buyers. My hat is off, however, to those who are truly 'off the grid' with PV or creek hydropower etc. These are the real pioneers. I read somewhere that California's power needs would require the entire state of Massachusetts to be PV panels... not likely unless Al Gore is elected dictator, oops I mean president." – Paid-up subscriber Joe
"I don't know what the costs per KW Hour are in Colorado. In South Texas I priced a solar system for my house four years ago. With our local electric company paying incentives up to $25,000 plus 30% Federal incentives, a system to power our house in Texas, after incentives, would have cost the same as 11 years of electrical bills. Unfortunately, you have to pay the entire costs for 11 years of electricity up front and not spread out over 11 years. This was a battery system so it would provide power at night, but it wouldn't provide power after several days of no sunshine.
"Here is the bad news. The equipment has a 10-year service life. The batteries have only about a five-year service life. The costs for subsidized photovoltaic electricity are about break even with incentives for our local power system, given that you pay for 11 years of electricity up front, but the equipment only lasts 5 to 10 years. What makes the photovoltaic system cost prohibitive is the cost of the hardware. What makes photovoltaic unworkable is that without subsidies, at current hardware costs, photovoltaic electricity costs about three times our local power company costs.
"I can't comment on how cost effective the system would be during the July, August and September time frame in South Texas where we have about four to six daylight hours every day with temperatures over 90 degrees. I can't comment on how often you would need to wash the South Texas dust off of the solar array for the system to operate properly.
"To have a chance of being cost effective, the price of the hardware for a photovoltaic system would need to drop roughly in half, perhaps by 2/3. That is not impossible. With advances in technology this is actually very possible, but not soon. Once you reached this benchmark, then you would need to find people who could afford to pay for 11 years of electricity in advance.
"In the time frame necessary for photovoltaic to make economic sense, it is quite possible that Thorium based reactors would become available at more reasonable prices. Thorium is a sustainable reactor with zero risk of meltdown and is a more available nuclear fuel that would seem to be safe and the fuel can be manufactured in a breeder reactor. From what I understand a thorium reactor could be implemented in a small form factor to service a neighborhood making a statewide power grid no longer necessary. The one significant drawback to the thorium reactor is that it can't be used to make nuclear weapons. Today that drawback would be considered an advantage." – Paid-up subscriber Gary Helwig
"Even though Eric Stark made a very compelling argument for solar power, Porter's argument was even more so. I've been very temped to jump into solar. It seemed to make sense. But now I feel I have the 'real' facts as presented by Porter. And yes, I totally agree with his Buffett observation. He now controls the power company here in southern Nevada. If solar doesn't pay here it can't pay anywhere." – Paid-up subscriber Kirby Trumbo
Regards,
Sean Goldsmith
February 17, 2015
