Bill Gross’ latest paper is out and as usual there are some great nuggets of information especially in this discussion in regards to negative yields and their impacts on bonds, funds, banks etc etc…here we still wonder aloud, if yields are negative does the good old fashion discount rate still matter?

• What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion
• The recent collapse in worldwide bank stock prices can be explained not so much by potential defaults in the energy/commodity complex, as by investor recognition that banks are now not only being more tightly regulated, but that future ROE’s will be much akin to a utility stock.
• Investment implications? Do not reach for the tantalizing apple of high yield or the low price/ book ratio of bank stocks. Those prices are where they are because of low/negative interest rates.

Source: Janus