By now, most Americans are aware of our record low interest rates, whether it's through a reduced mortgage payment, lower credit card charges or simply from hearing about the 10-year Treasury yielding 1.5%. What you may not know is that there are a dozen countries whose 10-year debt is yielding less than 2% right now, and that 7 of these are even lower than the U.S., including Switzerland, Japan, Hong Kong, Denmark, Germany, Sweden and Singapore.
By comparison, the 10 year Treasury yield was more than 2 percentage points higher after Lehman Brothers filed for bankruptcy in September 2008. Are things really more scary out there today than they were 4 years ago?
"Around the world, the single narrative of collapse has taken hold," says Ed Dempsey, chief investment officer at Pension Partners. "Everyone is positioned for collapse."
Interestingly, the other side of this panic-like flight to quality is being matched by a panic-like flight from stocks. In fact, in a note to clients Tuesday, Stifel Nicolaus' David Lutz writes ''asset allocators at major retail firms have their equity weighting the lowest in over 15 years - well below 2009 levels which was a big mistake."
Fear and pessimism are clearly in charge and on a roll right now. The recent string of weak jobs data, talk of recession, the fiscal cliff, and slowing growth in Europe and China are all adding to investor angst.
"I'm not saying that the event can't happen or it won't happen, I'm simply saying that bond investors are positioned as if it [the cataclysmic event] has already occurred, and therein lies the opportunity," Dempsey says, painting a scenario that could see the S&P 500 finishing the year with a 30-40% gain.
While Dempsey says it is clear that we are in the midst of a slowdown, and probably headed officially for recession by the 3rd or 4th quarter, the current climate is just not that threatening.
Context is King.
