September 6, 2011 - EU, Government Bonds, and the U.S.
1. All eyes are on the EU
Against the backdrop of EU banks asserting the industry's financial condition is at its worst since 2008, overnight the Swiss central bank set a minimum exchange rate at 1.20 per euro. The Swiss franc is seen now as a risk averse currency investment, that in turn will cause other EU currencies to be viewed as possessing more risk. However, the "risk cost" of insuring european banks fell (despite Deutsche Bank's comments) while today the Italian Senate is debating an austerity plan, and ECB ministers are discussing a bail out plan for Greece.
2. A Survey of Government Bond Yields
So, what yields can investors attain considering 1?
The U.S. 10 year is under 2%, with Germany's yield 1.9%. The Greek 10 year yield is 19.49%, and 2 year Italian notes are yielding 4.09%. Thus, an investor seeking government bond yields (let's not forget corporate) would also want to consider Brazil, Australia, and certain emerging and frontier countries: look for under leveraged balance sheets and low government social expenditures, among other factors.
3. A View on the United States
Heading into the President's speech on September 8, it's all about jobs, as we stated the week of August 29. With the tepid near zero jobs creation in August (announced September 2), and below forecast August ISM number (51 v 59 forecast). The Fed will continue to impact economic factors that it is able to influence, however the Legislative and Executive branch must design and implement effective policies as well.
4. Long term investors must remain diversified, and as near and long term history reminds us, capital market recoveries do occur. As evidence, considering the September 2 Dow close of 11,231 the index has increased since the September 1, 2010 level of 9,968 (rounded), an increase of 12.6% and while a year ago the unemployment rate was increasing over 9.5%