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Comment by mruts | Hacker News Reader

Then buy the US risk free rate instead? Or get some nice equity premiums if you want. I seriously have a hard time understanding logic like this. Who is actually saving money in a savings account? There’s literally only one reason why you would keep money in a savings account: For FDIC (or equivalent) protection. But if that was the sticking point, then US T-notes are even better and they don’t have a 250k limit.

Maybe this guy doesn’t know anything about finance and doesn’t understand? I’m confused.

Moreover, this is exactly what rate cuts are for: to stimulate the velocity of money and encourage investment.

Europeans in general are so risk adverse that they make irrational financial decisions. As EMH posites, you get a return commensurate to your risk: without bearing risk, there cannot be any return.

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First of all the German pension system works completely different than that of the US for example. Savings generally aren't for retiring so they can't be seen as long-term. Therefore most people simply don't want them in volatile investments.

The amount in savings accounts is probably much lower than what you are thinking. Median net worth in Germany is only around EUR 50.000.

In a country that’s obsessed with saving, wouldn’t there be a lot of money in these accounts? Though in a country like Germany that has a large state welfare program, you would think that saving wouldn’t be particularly popular.

To be saving you first of all need to have some cash left over. In Germany you only net about 55-60% of your gross income and pay has generally not kept pace with inflation for many years. Moving within Germany doesn't make a big difference as rent is highest where pay is better.

Investment returns are also heavily taxed.

If you’re German and buying US treasuries, you’re exposed to foreign currency risk. If you want to hedge that risk, you’ll pay for the privilege so that it’s no longer worth it. For the same reason, the German negative yield bonds are actually positive yield after swapping doing a currency swap to dollars.

This is true, but by taking USD exposure rather than Euro exposure, you are actually derisking and hedging out the massive currency exposure you already have. Namely the fact that you use Euros for everything in your life.

So it would probably be a better idea to hedge some of that out unless you have some specific long view on Euros. Also you could argue that Euro debt isn’t sovereign debt since only the European Central Bank can make more of it. Consequently USD should be a less risky and more stable currency in the long-term.

Juergen from Bonn is not interested in buying US Treasuries for the same reason that Joe from Baltimore is not interested in buying Mexican government bonds even though they yield 7% rather than 1.5%.

You’re comparing Mexican bonds with US T-notes? US 3-month treasuries are the risk-free for the entire world. Every investor and every country in the world (besides maybe North Korea or something) hold them in massive quantities.

Obviously not “every investor” does hold Treasury bills, not even in the US.

And if you don't like the Mexican bond example [1], let’s say it’s for the same reason that Joe from Baltimore was not interested in buying Australian government bills a few years ago (when they were yielding 2% more than US treasury bills). Note that the rating for the Australian debt is better than for the US...

[1] it’s true that a comparison of 3m bills (8% yield in Mexico vs 2% in the US) would be more appropriate.

They're not risk free, because there's always the currency risk. 20% of my portfolio is US govt bonds, but that's mostly to hedge against the fall of my country's currency.

You’re right, nothing is risk free. In finance though, the three month US Treasury bill yield is considered the risk-free rate. The only reason why this matters is that the risk-free rate is built into almost all financial equations and models.

Yeah, I'm pretty sure there is a reason they pay higher interest, more risk.

> Who is actually saving money in a savings account? There’s literally only one reason why you would keep money in a savings account

Immediate liquidity.

> For FDIC (or equivalent) protection.

That too.

It’s a common attitude, investing is seen as little more than gambling.

EMH says that prices reflect information, if anything it's a statement about the mean/expected return. What you are probably referring to is CAPM which has this baked in as an assumption on people's preferences.

EMH directly implies that it’s impossible to beat the market on a risk-adjusted basis. Therefore, all above market return is just compensation for bearing additional risk. Therefore EMH is fundamentally about there only being one Sharpe ratio, the market Sharpe.

Though you could also say it’s about the market incorporating all known information because that and there only being one Sharpe ratio mean pretty much the exact same thing. Moreover the implications of CAPM and EMH are pretty much the same.

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