Above the Noise: Have investors just completely gone mad?

I see increasing distortions in the pricing of financial assets. From a 10,000 feet perspective it looks like investors have gone completely mad.

Take this chart below. It shows US and German 7-year government bond yields which for the former hit record lows today at 1.1301 percent! I understand that investors want safety in their portfolios and that inflation is coming down in the US and Germany again, but it seems to me that investors would rather depreciate their net worth inflation adjusted by 1-2 percent annualised with complete certainty than move just north on the risk curve.

Meanwhile, coporate bonds are a far cry from the insanity going on in government bonds - which should only be sold to investors with a big warning sign, quote Warren Buffet. The chart below shows the yields for the highest and lowest investment grade US corporate bonds. These bonds still provide serious yields of 3.8 and 5.1 percent respectively and for the former (which are AAA rated corporate bonds) you get extremely solid companies. Another positive spin on corporate bonds is that we can at least expect corporate leaders to act almost rationally and work towards maximising shareholder value, whereas politicians (the leaders behind government bonds) act on misguided understandings of what policies work.

One final thing in favour of corporate bonds. It's relatively easy to understand and comprehend the audited financial statements of a private company whereas public finance statements can have the complexity of a rotten derivatives book.

Finally, if you are not scared of the future and want a claim on productive assets (you will still have the claim no matter what currency we use in the future) then you should consider adding exposure to global stocks - like multinational companies with strong products or extremely uncorrelated stocks (see my 20 European stocks to consider in crisis times for more on this). The downside risk is of course greater in global stocks compared to bonds, for obvious reasons, but valuation is nowhere near alarming levels and with JPM's Global Manufacturing PMI SA Index above 50 and rising, the dips in global stocks should be viewed as an opportunity.