Forwardfinancialplanning Blog

More evidence that others are “fearful” January 10, 2012

Recent posts on this blog (January 2, December 14) have noted the extreme degree of “fear” currently pervading the investing world.  And now, from Europe we have still further evidence that perhaps risk aversion has reached an extreme.  On Monday, Germany auctioned $3.9 billion Euros of 6 month sovereign notes at a yield of -0.0122%  (yes, that is a negative number!).  This signifies that the investors in this German debt are willing to ”pay” a small amount for the perceived assurance that they’ll receive the face value of the debt back at maturity.  They’re also willing to lock in a negative return in the process.

Germany is considered one of the “safe havens”  among European governmental issuers of debt and as such, is viewed as a “risk-free” borrower.  A little further research revealed that Switzerland (September) and the Netherlands (December) have also recently issued sovereign debt at negative yields.  And, yields on US T-bills dipped into negative territory in the financial markets (i.e., during financial market trading activity but not at auction) during October. So, once again, we’re seeing further evidence that others are “fearful”.  This would be a signal to become “greedy” according to investing genius,  Warren Buffet.  

With all of the bad news coming out of Europe these days, it’s not surprising that investors are fearful.  Perhaps that’s why Buffet has been so successful—-he’s comfortable being a true contrarian.