While we digest the information we obtained from our recent business trip to Japan, I wanted to share a few thoughts on global interest rates. Amidst the recent Fed “noise” around rates in the U.S., I thought I would highlight what I believe was a shocking milestone reached over in Europe a few weeks ago. Both Henkel (€50B euro market capitalization – seller of household products) and Sanofi (€90B euro market capitalization – pharma company) managed to convince a group of fixed-income investors to pay them for the right to borrow money. Yes, you read that correctly. The investors will lend them a dollar and be guaranteed to receive less when the bonds come due. What makes this even more shocking is that both stocks have dividend yields of over 2%. This means that you could buy their equity and receive your pro-rata share of all future earnings, and the growth that comes with that, all while getting paid 2-4%. Or you could lend them €1.5B over three or more years and not even receive your money back. Seems pretty simple to us which one we’d prefer in terms of outcomes. (Side note: we do not hold either of these securities.) Steve has written on how we approach income differently and I encourage you to read it here.
For those of you who can’t believe this happened, here is a link to a Financial Times article on Henkel and Sanofi. My favourite quote is the reference to the “greater fool” theory that is going on amidst these low/negative rates. Only time will tell how this level of euphoria ends but it sure reminds us of prior manias.