Imagine you are talking to your boss about a potential project. If you proceed, there is no way to make money with it if we finish the job. Your recommendation is to nonetheless go ahead anyway. In most profit seeking enterprises, this situation would probably lead your boss to rethink your earnest employment. Â
Such a dilemma currently exists in the financial world as there are billions of dollars of fixed income securities with negative yields which are being purchased even though if they are held to maturity, the owner will lose money. Yet, willingly, there are plenty of buyers, typically institutions which have some kind of regulatory requirement as to minimum fixed income ownership and liabilities which must be met. When the ten year treasury hit 1.39% a few weeks ago, many observers in the investment world knew the end was nigh, it had to be. Treasuries have bounced some, finishing yesterday at a generous 1.594%. Purchasers of these supposedly risk free assets might be a bit nervous, nonetheless, as lo and behold, better growth and inflation may be starting to percolate. Gulp.
You see, when the June retail sales number registered a hearty .6% (expected .1%), it was more confirmation the domestic economy is at the very least, solid. Earlier in the week, super bank JP Morgan Chase (JPM) registered a plus $6 billion profit, and Citibank (C) Â and Wells Fargo (WFC) followed by meeting expectations as well. Â
All the money center banks suffer from minimal net interest margins and if the Federal Reserve Bank decides to eventually do the deed, should benefit immensely. In conjunction with the bank results, some of the largest employers in the land, including Wal-Mart, Chase, Starbucks, and Target have publicly indicated they are giving their hard working employees much deserved raises in pay. As we know wage inflation constitutes the majority of the entire inflation number, it is not a stretch to believe a stronger inflation figure should be expected. Â
