E While Declared Dead, DJII Just Won’t Stay Down

While declared dead, DJII just won’t stay down.

Bond rates continue to tumble as Brexit stokes fear

Equities even more underpriced relative to bonds

Equities fell on Brexit vote but rebounded as bonds soar

Upward pressure from higher dividend-discount value of DJII, offset by domestic and foreign liquidation to raise cash to be reinvested in “safe assets”.

Into bonds perhaps? They have momentum?

Following a week of huge political turmoil in Euroland, being interpreted as financial Armageddon by some traders caught on the wrong foot, the DJII has recovered most of its loss since Brexit. By Thursday last it ended the month at 17,930 up from 17,878 at end of May and 17,682 at the end of March 2016 as well as 17,425 on December 31, 2015.

This is attributed to the enormous and continuing upward pressure on the price of the DJII by the seemingly ever-rising dividend-discount value of the DJII. This has been brought about by the combination of a record DJII dividend and a falling discount rate as measured by the U.S. 30 year T Bond yield, which has fallen in tandem with the U.S. 10 year note.

From turmoil of the PIIGS in Euroland in 2011 to the craziness of negative yields of 2016, U.S. 10 year Treasury rate remained a beacon of stability at approximately 2% but is now under 1.5%. While it does not look as though the USA will voluntarily move to negative interest rates, the Fed has no direct control over the long end of the bond market. Market forces, however, may result in the rate of the 10 year note of falling further. It being seemingly the only game in town for safety-seeking, yield-hungry market participants.

“Buy when there's blood in the streets."

Attributed to Baron Rothschild who bought in the panic that followed the Battle of Waterloo.

Out of the Euro-panic of 2011 by far the biggest winner among those countries that still have positive yields, is Ireland. Since blood ran in the streets in 2011 the 10 year rate has fallen from its peak of 14% to under 0.5%. From disaster and despair to the new financial darling of the post-Brexit EU. This is particularly the case in the eyes of many Britons of Irish descent who want to remain in the EU as evidenced by the overwhelming demand for Irish passports.

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