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March 8, 2015
The perfect market storm: brace yourself for two bull markets to slide at once
Of course, a handful of modest interest rate increases – Federal Reserve Chair Janet Yellen has gone to great pains to demonstrate that policymakers have no intention of putting the economy at risk by sending interest rates soaring – aren’t going to wreak havoc. But they do mark a big paradigm change: the end to the bond bull market that dates all the way back to 1981.
If all it took was a handful of modest interest rate hikes to end the bond bull market that dates all the way back to 1981, then it would have ended heading into the early 1990s recession, the dotcom bubble popping recession, and the most recent real estate bubble popping recession. For those who may not have noticed, this is not exactly the first interest rate hike rodeo.
But I'm game. Tell me how I should prepare for this supposed paradigm shift.
Plan in advance for how you’ll respond to various market scenarios – talk it through with your adviser, your partner, or your investment club members.
Oh crap. My adviser? My investment club members? Seriously? How about my taxi cab driver too while I am at it? I seem to be lacking in that department. How about I just bounce my concerns off this blog's readers and call it good.
Blah blah blah paradigm shift blah blah blah rising interest rate environment blah blah blah perfect storm blah blah blah crushing stocks blah blah blah Wall Street panic blah blah blah more QE blah blah blah emergency rate cuts blah blah blah unemployment disaster blah blah blah bomb shelter blah blah blah deflation scare blah blah blah Japan blah blah blah more ZIRP blah blah blah one trick pony blah blah blah more of the same blah blah blah short-term savers shafted yet again blah blah blah.
Oh, yes. That was very helpful. Thanks for the advice. I feel much better now.
December 20th COVID Update: COVID in Wastewater Increasing
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[image: Mortgage Rates]Note: Mortgage rates are from MortgageNewsDaily.com
and are for top tier scenarios.
For deaths, I'm currently using 4 weeks ago for ...
14 hours ago
6 comments:
I think long bonds are in a win/win situation now.
If the Fed does follow through and raise rates this year it will further accelerate the unwinding of the USD carry trade, the dollar index will enter the stratosphere, and multinational US corporations will take a beating when their USD-reported profits nose dive. Maybe long bond yields rise a few basis points under that scenario, but there's no way we get to 3% with all of Europe (sans Greece) yielding less than 2%.
If the Fed balks and has to acknowledge weakness in the US economy then long bonds look like a reasonable option for a prolonged period of stagnation. Eventually retiring boomers will need to take some chips off the table, and now is an attractive time to do that.
Unless Congress declares war on the currency, I don't see why USD will be any more abundant in the future than they are now. Given how many people are short dollars (i.e. have USD-denominated debt) that's going to be a problem.
Nathan,
Well said. Although the 30 year treasury's yield has risen recently, I continue to be 80% confident it will stay under 3% for all of 2015 (as I originally predicted back in December).
9 1/2 months to go!
And as for my 80% confidence that the Fed would not raise rates in 2015, I continue to be comfortable about that. Although the job reports have been good, the CPI is not exactly screaming hyperinflation imminent. Hardly a big shocker after oil's epic decline. Who really knows how much that will trickle into the rest of the economy?
In any event, corporate profits should struggle from here. As an added penalty, finding qualified workers as the unemployment rate falls just gets harder and harder. The tailwind of easy employee pickings is probably nearing the end.
Mark,
I'm ambivalent about whether the Fed will raise rates or not. IMO it's entirely a political decision for them at this point. Here's what Jeff Gundlach said about it last year
"The Fed should not be raising interest rates, and yet they don't want to be at zero. They're in a conundrum," he said. "They might raise rates just to see what happens."
Another thing you don't see amidst multinationals whining about the strong dollar is anyone talking about how profits in 2011-2014 were temporarily supported by a weak dollar.
Nathan,
"They might raise rates just to see what happens."
Hilarious! I laugh because most assume that the Fed already knows how its primary tool works. It should have a firm grasp of all the intended and unintendef consequences.
I don't assume such things of course. I see a group of detached individuals who think they are smarter than the markets, even though history might strongly disagree.
That's especially true given how well they popped the housing bubble that Bernanke once claimed did not exist, lol. Sigh.
You heard it here first. The corporate bond bubble does not exist.
When the Fed officially denies it, it will be time to short.
AllanF,
Some companies are flush with cash. Some companies are flush with debt.
We'll be fine as long as we can contain the subprime. So what if we are zero for one on that? I have a really good feeling that this time it is different, lol. Sigh.
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