Stockman Slams The Risible Myth Of The Savings Glut And The Lunacy Of Sub-Zero Yields

Authored by David Stockman via Contra Corner blog,

When something like the truly freakish chart below appears, you’d think that even the Wall Street gamblers would get their collective heads out of the sand.

The fact that in September 2017 Austria was able to issue a 100-year bond at a mere 2.1% yield was crazy enough. After all, the old Austria (Austro-Hungarian Empire) disappeared exactly 100 years ago at the Versailles Conference; the rump state left behind was nearly crushed by Hitler in the 1930s and the Soviet Union in the 1950’s; and for the last 70-years inflation has averaged 2% at least, while the welfare state keeps growing and taxes keep rising.

So why so-called “investors” purchased a 100-year bond with the prospect of virtually no yield after inflation and taxes and a reasonable doubt as to whether the Austrian state would survive to 2117 was always a bit of a mystery.

But it could perhaps be explained by the Greater Fool theory. That is, there wasn’t much yield to be had anywhere else in Europe, and a smart asset manager could always collect the 2.1% yield and  get out of Dodge at the first sign of credit weakening, rising inflation or default troubles by dumping this dubious paper on the next in-rotation mullets.

That was then, and as they say on late night TV, there’s more. Much more!

In the the interim, the price of this EUR 3.5 billion beauty soared by 60% from the issue price, forcing the already meager yield down to just 1.12% by late June. So, not surprisingly, the Austrian government didn’t need any special prompting: It reopened the issue and sold another EUR 1.25 billion tranche due 2117

Keep reading this article on Zero Hedge - Blog.

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