Let’s first start with Global Sovereign Debt. The 30 Year US Treasury hit a historic low today of 2.205%.   This surpassed the previous low on February 3^rd 2015 of 2.229%. The 10 Year US Treasury also hit a historic low today of 1.414%. The 10 Year has ben hitting lower lows for over a week now. Low rates? You think. Maybe you even think…again, that rates cannot go any lower. Well they are Low here, but even lower in EU and Japan.

• UK 10 Year .866% (yes, they are still in the EU)
• Sweden 10 Year .246%
• Spain 10 Year 1.142%
• Netherlands 10 Year (.059%), yes that is a negative
• Japan 10 Year (.253%),
• Italy 10 Year 1.138%
• Germany 10 Year (.120%)
• France 10 Year .163
• Belguim 10 Year .056%

All HISTORIC LOWS! “Liquidity Trap?”

Here’s the paradox. Last Friday June 24 ‘Brexit’ really happened and Dow Jones 30 dropped almost 600 points. The Dow has since surpassed the high it had prior to this drop. Only a few hundred points from it’s all time high.

Over the long term, however, Long Term US Treasuries are THE MOST NEGATIVELY CORRELATED ASSET TO STOCKS. What this means is nothing, no asset, goes in a greater opposite direction than these two assets. Stocks go up, Bonds go down. This is negative correlation. Bonds go up, Stocks go down. This is negative correlation. Eventually, they will turn negative…again.

John Maynard Keynes theory of a “Liquidity Trap” is simply this. A Sovereign Government with a ‘Central Bank’ lowers it’s interest rate to encourage lending by financial institutions and borrowing from consumers and businesses. It keeps lowering and lowering the interest rate but it doesn’t encourage lending (liquidity) and borrowing as much as they desire. They keep trying, and it keeps not working like they hope. Thus Keynes Liquidity Trap. With yields go lower and lower, and seemingly spreading around the world, perhaps the ‘trap’ is like a “Whirlpool”. Sucking others in to it.

Market Data provided by: Thomson One Analytics, Bloomberg News, Wall Street Journal

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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