where the writers are
France Stops To Take On A Little Ice...

I like "the glass is half-FULL" -news as much as the next guy, but I do wonder a bit at the cheerfulness of the AP writer who penned the lead in the story about France today, noting that the French government just had a successful bond issue "paying" its "investors" negative interest... in effect, charging folks for buying French national debt. To wit:

Associated Press

PARIS (AP) -- France enjoyed a boost in investor confidence with a successful bond auction Monday - but also got a warning from the president that growth so far this year is "nil" and that the country needs to rethink its social model.

France's government sold (EURO)6 billlion in short-term bonds at negative interest rates Monday, as investors flock to the perceived safety of Europe's larger economies. It was the first time rates entered negative territory, according to the French Treasury..."

Huh. Well, investors invest for two basic reasons:

1) To make a profit from "renting" their money to a second party; in bond purchases, that's called being paid interest on the investment.

2) To put their money in a safer place than other market alternatives, even if it means lower returns (or in this case, a loss).

The eagerness with which the new French-bond purchasers jumped aboard should, IMHO, be considered terrifying. It means that they see NO safe investments in the marketplace, believe that banks aren't a safe place to park their cash, and figure that a French government bond at least has a chance of being redeemable when the manure hits the fan.

That they are doing this as the new French president warns that the economy there is stalled --and that the nation may need a fundamental social transformation, a term that usually strikes horror in investment circles-- only highlights the teetering-on-the-edge nature of the situation. France, which faces a looming debt crisis of its own, is still considered a safer bet than any alternative the investors can see.

A "boost in investor confidence"? Even with the legendary "ca va bien" attitude of the French, I somehow doubt this, Associated Press.

It's more, IMHO, like folks bribing the purser of the Titanic to get first dibs at even a moth-eaten life jacket.

"Enjoy zee swim," is anything but confidence-inspiring, I fear.

3 Comment count
Comment Bubble Tip

Trapped below-decks in the Titanic analogy...

Reader Rich, a faithful follower of my oft-overheated musings, responds-- and I reply:

R. Rich: To extend your Titanic analogy, it's like leaving port with your hull already breached. I get that markets hate uncertainty, but if the flip side is certainty that you're going to sink, why set sail in the first place? 

Earl Merkel responds:

In days gone by, back when people wore powdered wigs, financial analysts used to predict --quite accurately-- a pending financial crisis by noting when Frenchmen started stuffing their money in mattresses. That, I'd abashedly posit, would have been a better analogy for today's news... but I couldn't have then gotten cute with my headline or the closing paragraphs, sadly.
At the risk of libeling investors as a whole --which I definitely don't intend, but the need to be cute wins out again--  I'll answer your insightful question in the Titanic-themed spirit in which I started: rats, being pragmatic, tend not to wholly abandon ship until the water fills the hold and the bow dips beneath the waves.
If the AP defines that as "investor confidence," I guess I can accept it, eh?


Comment Bubble Tip

Wait! Did you mean...?

It didn't occur to me (until just now) that Rich may have been asking ("why set sail in the first place?") why would investors buy the guaranteed-loss, negative-interest French bonds... rather than just sit on their cash, squirreled away a la Scrooge McDuck's underground vault.

While I certainly would --the idea of rolling naked on a thick mat of banknotes and even on the far lumpier gold bars has a certain prurient appeal to moi-- few with such monetary resources feel comfortable doing so (the University of Texas, with its warehouse of "physical" gold, is an exception; go Texas!) Storage, armed guards, etc. are also expensive for such idling funds, which creates a monetary loss in itself.

The usual way of "safely"  stashing cash is in a bank... and my assessment is that these particular "negative interest" investors are betting on a LOT of bank failures in the near future.

Comment Bubble Tip

A "Higher" Liquidity...

One more flogging of the debate...

READER RICH: On reflection, it's also true that mattresses aren't what they used to be. Try stuffing a water bed with cash, and you're still going to need a life preserver. May as well be on the Titanic. ;-) 

Earl Merkel Either way, Rich, you've created a new meaning for the term "liquid assets."

Me, I might have put my trillions into casks of Scotch (not literally; the ink would run) and smiled pensively as both aged in mellow safety and increasing value.

For me, "high" interest in every sense of the word.