Wednesday, September 23, 2015

The Two Most Popular Long-Term Interest Rate Camps

Camp 1: "Eventually, Interest Rates Will Rise"

January 17, 2014
A couple of frugal years before pensions kick in will do the trick

Eventually, interest rates will rise. Bonds, which are the core of annuities, will pay more. Annuities will raise their payouts and, given that much of what they pay – especially later in life when death is closer – is untaxed return of capital, they will be more attractive.

Good luck on that theory. The 30-year treasury yields about 0.75% less now. 2014 was a great year for bond prices. Go figure.

Camp 2: "Interest Rates Will Rise Eventually"

June 17, 2014
Why You Shouldn't Be Afraid of Rising Interest Rates

NEW YORK (TheStreet) -- There is no question interest rates will rise eventually. When they do, interest rate-sensitive investments like bonds and bond funds will likely fall, perhaps even sharply.

Wasn't really afraid of rising rates. As a long-term saver, I was much more worried about falling rates. The 30-year treasury yields about 0.5% less now. Go figure.

So here's my question. It takes two opposite camps to make a market. For every seller there must be a buyer. Where is the opposite camp? Why aren't they talking? Must it fall on me? Well, okay.

Camp 3: "Eventually, We'll Be Stuck in ZIRP Again"

There, I said it. Behold the elephant in the room. If we did it once then we can do it again. Eternity is a long time.

Hey, if the rising interest rate theorists can use the word eventually to make their case then so can I. Eventually can take an eternity. Hell, eventually our sun will exhaust its fuel. Better dump those solar company stocks now before it is too late, lol. Sigh.

Seriously, if you have to use the word eventually to make your case then you better not be offering timing advice.

If everyone knew for sure that long-term interest rates would rise from here, then everyone would be selling them. To whom though if everyone is selling? Gotta have a buyer in order to sell! This isn't rocket science!

There are no free lunches. There is no trade that is guaranteed to pay off. If there was then we could all get rich betting on the obvious.

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. - George Soros

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