Dec 10, 2008 -- U.S. treasuries paying negative returns for first time ever
CLARKONOMICS: In an unprecedented occurrence, interest rates on U.S. treasuries have fallen into negative territory for the first time ever.
U.S. treasuries are like CDs for the rich. They're usually bought by large institutions in batches of $100,000 or more. In essence, when you buy a U.S. treasury, you're lending money to the federal government for a certain period of time.
The negative interest rates -- which dictate that you get back less than you originally put in -- have some people in financial circles freaking out. But Clark doesn't share their fears. In fact, he takes the opposite point of view and sees it all as a very healthy sign.
Before we get to that, why would anyone be willing to earn a negative return? Clark suspects it's so that the purchasing institutions can dress up their books at the end of the year. It looks very solid on paper when you have U.S. treasuries in your portfolio.
The professional investors making the decisions to buy the U.S. treasuries are panicking and making a choice based on emotion. But when there's blood on the streets, as they say on Wall Street, it can actually be a very good thing.
When the professionals lose confidence and faith in the future, that usually signals that we're heading to better times when it comes to the typical kind of investing most people do each pay period or each month. This is not a guarantee, but Clark does see it as a positive sign.