Have I got a deal for you! It's a 10-year Treasury bond that yields 10%! There's no risk. It's backed by the full faith and credit of the government!
There's just one detail. The government backing this treasury bond is the government of Greece.
I admit it, the Greek government hasn't had exactly a great track record repaying its debt. Greece has been an independent nation for about 180 years, and its government has been in various kinds of default on its debt for about 60% of the time.
But really, this time is different. Wait -- did I really say that?
Maybe it actually is. This time Greece isn't just a little rinky-dink country with some cool ruins and some pretty islands. It's part of the European Union. Its currency isn't some third-world waste-paper anymore. It's the euro -- the same currency used by Germany and France.
So what could go wrong? Apparently everything could. People are saying that Treasury bond yields don't hit 10% unless something is going very, very wrong. As you know, there's lots of talk that Greece will default, because of its high debts and deficits, and be ejected from the European Union. Some very famous investment gurus are saying all that.
But I say otherwise. I say buy those Greek bonds at 10%.
Having 10-year bonds yielding 10% doesn't mean you're going out of business as a nation. In the United States, our Treasury bonds yielded over 10% as recently as October 1987. OK, there was a little stock market crash then -- which lasted one whole day. We weren't going out of business in October 1987. In fact, that was right at the beginning of a huge economic boom that lasted better than 20 years.
Our 10-year Treasury bonds were trading above 9% as recently as May 1990. If the world ended then, I guess I missed it.
In fact, seems to me that when the world came close to ending -- two years ago -- our Treasury yields were nice and low! Our 10-year yielded 3.5% the day Lehman Brothers went belly-up. And as the crisis deepened, the yields went down, not up.
So I'm not scared of high yields. But more fundamentally, I have a theory about the way the world works now. I'm convinced that, after Lehman Brothers, for all the brave talk about ending the policy of "too big to fail," the reality is that no government anywhere is ever going to let anyone fail ever again.
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