The Meaning of Negative Interest Rates with Don Coxe

Roller Coaster

“Six years of ingesting financial heroin has doubtless anesthetized most bond investors. They may be about to experience a pain they have not felt in decades.”
~ Don Coxe

Don Coxe has 42 years of institutional investment experience in Canada and the US. As a strategist and investor, he has been engaged at the senior level in global capital markets through every recession and boom since the onset of stagflation in 1972. He has worked on the buy side and the sell side in many capacities and has managed both bond and equity portfolios, served as CEO, CIO and as Research Director.

Don leads the Global Commodity Strategy investment management team – a collaboration of Coxe Advisors and BMO Global Asset Management. He is advisor to the Coxe Commodity Strategy Fund and the Coxe Global Agribusiness Income Fund in Canada, and the Virtus Global Commodity Stock Fund in the US.

In our discussion on the Solari Report this week, Don reviews the nine sovereign bond credits that are now trading at negative interest rates at maturities from 1 to 10 years. He explains that there is literally is no precedent for what the bond market is about to experience as a result of negative interest rates. He reminds us, “Not only is there nobody managing money today who was managing Treasury Bonds back in the Kennedy administration, there are very few who were managing bonds in the bear market under Nixon.”

Other thoughts from our discussion this Thursday:

  • When you find out that pre-Napoleonic war yields were higher than current bond yields, you realize that we do not have precedence.  If you open the text books, you will not find anything that will prepare you for what has to happen as we go to “normal” yields.
  • We’re talking about tremendous dislocations in a huge pile of assets that will send all the other markets in different directions.
  • It is possible that people at the Fed may be saying: “If it’s going to happen when I’m here, then I’m going off the FOMC next year.”
  • Although there will be opportunities, the biggest opportunities are likely to include equities (versus bonds).

In Let’s Go to the Movies, I will review Rush: Beyond the Lighted Stage, a documentary about the one of the most popular (and unheralded) rock bands in the world: Canadian rock band Rush.

Please join Don Coxe and me on the Solari Report this week! Not a subscriber? Learn more here…

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