Jim Grant and Michael Harkins on the Bond ‘Bubble’

Jim Grant and Michael Harkins on the Bond 'Bubble'

Video and transcript below:

A look at where to invest in a low-rate environment, with Michael Harkins, Levy, Harkins president, and Jim Grant,Grant’s Interest Rate Observer

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time to put europe in focus, joining us is michael harkins, president of levy harkins. thank you for being with us this morning. let’s talk about the bond market and what you’re calling a big bond bubble. why? because interes rates are so low for so long, and they’re so very dangerous, the arithmetic of the bond market is unforgiving. if you buy a ten-year treasury today, this morning, you get 1.5%. okay, a year from now, if interest rates, by some miracle, good times break out, this is the united states, it’s happened once or twice before, and good times break out, and interest rates go to 2.5%, that bond you purchased today will be down eight points. you’ll have paid 102.25 and you’ll get about 94 and change. listening to this gentleman on the set, you would have no sense — i don’t know, i don’t want to misstate this, i’m not sure you would think good times. you’re about to, andrew. i’m not sure good times are a-comin’ and we’ve had a number of people on the set who said that. interest rates are not good times. this is not the apocalypse. this is kind of okay, life goes on, and yet we have interest rates pitched well below measured rates of inflation. that’s because of what the central banks are doing. it’s also muscle memory, 31 years and counting. i’ve joked, nobody’s published a balance sheet since 1992. we’re running to the veracities from 20 years ago. the idea the germans can borrow money at ten years at 1.4% is astounding, all the more so, if you ever were in the german bond market back 20 years ago and they were paying us 9.5%, it was painful. tell us about your experience in the german bond market way back when. financially it was great, sociologically it was awful, the clients were dreadful. the clients despised having their money that far away. this is 1992. 1991, ten-year german bunds, 9.5% and three ways to win, the deutsche mark could go up, the bonds could appreciate or the stock market could explode. all th things happened. now there are no ways to win and a german politician, sarah vagenkinect she’s in spiegle claiming the germans should repudiate one-quarter of all