IBM, Johnson and Johnson, and McDonalds are issuing debt with rates comparable to US government debt and at lower rates than that offered by many foreign governments. What does this mean? That bond buyers consider blue chip corporations as safe as the government which has the power to print money. That is profound: we have greater faith in the power to create and produce than we have in the power in government. The secret to surviving and prospering in a country with the government gone wild is to somehow insulate your life from the ill effects of a looter mentality; to make government as irrelevant as you can.
While our current regime is as anti-business as any seen in some time, stocks may be the preferred investment choice. Real estate is still rocky. With interest rates so low, they only have one way to go, and that makes bonds a risky investment. Gold is so popular that the contrarian in me hesitates, and few remember how gold collapsed from $800 an ounce to nearly $200 from the 1970’s to the 1980’s.
While many near retirement fear the low interest rates will strongly impact their retirement income, this low interest rate may not be so bad if we do incur any deflation. A 1% yield against a 3% decline in prices (deflation) is a real 4% gain in purchasing power.
The impact of the huge national debt may be offset by the eradication of wealth in the real estate collapse. This may explain how we have so much debt, yet prices are stagnant.
The federal stimulus is negated by the cuts in state spending and the unwinding of the credit bubble. The stimulus is unable to counteract the lack of confidence and trust. People are saving instead of spending because of the combination of fear and the collapse of credit. The government and the fed is trying to stimulate a demand that may not exist. They are fighting the last recession. This one is different.