I understand everybody is looking for the next big investment scene. As I said, you will make more money in emerging economies than in the US in the next few years but I would also like to introduce the thought and this thought is that 1980 to today we have had huge asset inflation; look at Mumbai real estate prices, 1980 and today, you look at Delhi real estate prices, you look at Chennai real estate prices, Bangalore, New York, London, Hong Kong, Singapore, you look at stock prices 1980 to today, you look at bond prices 1980 and today all asset prices had huge moves, huge moves and this asset inflation could come to an end. The question is not which group will do best in future but maybe the question should be how do I lose the least money over the next 10 years?
A lot of people are wondering why someone would buy a bond with a negative yield, say you buy Swiss Franc bond you pay 105 and in 10 years it will pay you back say a 100. So it has a negative interest rate. Now the reason bonds in Europe trade at negative rates is that insurance companies and pension funds they are forced by government regulation to buy these bonds which is fraught to start with but in addition to that, if you are the salesman and you come to me say here is a bond, it has a negative yield, say 5% over 10 years. So, it is 0.5% per annum negative yield grossly. Then why should I buy it? But if you are a good salesman and say the whole world would likely collapse and stocks will be down 40%. Bonds will go down, a lot of currencies will collapse, the Euro may collapse, but maybe it is not all that bad to only lose 5% over 10 years on your money than to lose 40%!
You understand the reasoning and there is a group of people that buy these bonds. If you had come to me and said buy these Austrian bond 100 years at 2.10%, I would not have bought it, but in two years, it has doubled in price. So, it was a great investment.
via economictimes
