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BFI Capital
May 3, 2019

These Are Deeply Irrational Markets

Late last week, the unthinkable happened. The yield on Greek government 5-year debt fell below 5-year US Treasury debt. Greek yields reached 2.174%, while US notes were 2.294%.

Greek 5-Year Government vs. US 5 Year Treasury Debt (Daily)

Source: Bloomberg, Weber Global Opportunities

Setting aside the absurdly low yields you are offered by both nations for lending money to them for five years, do you realize what this chart means? It means that with all of Greece's economic troubles, the market views its debt as safer than US Treasury notes of the same maturity.

Does this mean that US Treasury debt is more risky than Greek debt?! That strikes me as crazy. Even if the market believes that the European Union will come to the aid and bail out the worst problems Greece can get into, is the EU safer than the US?

There's another thing shown here. The value of Greek debt has been rising since 2017. Compare that to the value of gold or silver. Gold at the end of 2017 was about $1300. Now it is slightly less (at the time of this writing). And silver? It reached over $18 in 2017 and has fallen ever since. Now it is under $15.

So is the market rational, or is it crazy? Everything that common sense tells you is laughed at by the markets. We're still expected to invest and lose as little money as possible. With differing values like this, do you have to be crazy in order to make money? I think we have to be prepared to buy things that don't make sense in order to profit. I don't like it, and don't want to act this way, but there is truth to the old adage: "The market can stay irrational longer than you can stay solvent".

Nonetheless, I wouldn't buy either of these two 5-year notes. I'm not locking in rates of just over 2%. It's simply too crazy, too low. There'll be a time coming when the yields will rise. I'm willing to wait for that.

Chris Weber is a money manager and he has been sharing his insights with clients and readers since 1974. He regularly writes and publishes The Weber Global Opportunities Report,, a subscription-only newsletter. With a focus on precious metals investing, the Weber Global Opportunities Report covers a variety of topics that should be of interest to Global Gold subscribers and clients as well.

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