Source: BAML, Fiscal Times
I have been fairly agnostic on several issues related to where interest rates are heading. It has never been my job to forecast where the 10-year yield will be in six months. Not predicting and not caring are two very different things, however. Rates matter a great deal — to investors, to the economy and most of all to debtors of every kind.
You would be hard-pressed to find anyone in finance who would ever admit to believing that rates don’t matter. Despite the importance of bond yields and borrowing costs, few seem to have any idea how to analyze them in a way that provides a helpful conclusion.
And while many are quick to point out how disruptive the Federal Reserve programs of quantitative easing and zero-interest rates have been to stock and bond prices, that’s a terrible excuse. One would think that something so big, so contentious and so transparent would be easy to insert into traditional economic models. But no.
As it turns out, most of the economic community on Wall Street has gotten this terribly wrong. Some have disagreed, such as Jeff Gundlach and Gary Shilling (see this and this) but they are notable exceptions.
There are many indicators that keep suggesting that our low, low, low rate world is going to stay this way for a long time. Some of these are turning out to be more significant than many had expected.
First . . .
Its interesting that the annual fall of corporate profits is flagged as a headwind for the economy. However, if the fall is due to increased employee compensation and re-investment, then it could very well be a boon for the economy, although a headwind for the stock market. Making lots of profits, stashing them offshore, and giving large bonuses to executives has not really been a recipe for substantial economic improvement over the past few years.
Nothing unusual about this. BOJ dscount rate has been below 1% for the last 20 years.
The more important question is if/how/when we can exit an unusually low or negative inflation environment.
“Look no further than the USofA for a country with enormous financing needs and none of the political will to admit the simple truth. ” Your words are golden. Unfortunately the US government is in the hands of Tea Party morons who think that a Great Power with a sovereign currency should follow the same financial guidelines as a working class household, i.e. keep spending to a minimum, avoid debt. Super greedy 0.01% Scrooge McDucks swimming in billions of dollars spend hundreds of millions of those dollars, not on personal pleasure or great works to keep their name in the public eye for generations but on the election of ruthless political servants who will cut taxes and fill their pockets with even more meaningless money.
I quote Warren Buffet, “Last year I spent $117 million dollars including all taxes and security costs. I gave away $400 million dollars. Why should I care if I give it away or the government taxes it from me and then gives it away?” Octogenarian Warren Buffet continues working but for fun not to squirrel away a meaningless horde of nuts. As a Septuagenarian, I understand Warren Buffet. I can’t understand Charles and David Koch.
Forgot to add the most important part of warren’s quote, “I don’t see how a human being can spend more than $117 million in one year.” Both quotes from a Sunday morning interview with Christiane Amanpour, don’t recall the exact date.
Buffett sees himself as part of the human race. The Brothers Koch see themselves as part of the master race.
The “0 bound” needs to go though. Even the Feds own markers tell you that.
An EFFR of 2% will be sufficient to tip the US economy into a recession.
I never get how the categorical imperative does not apply – if the poor need to learn the joy of work, how come trust fund babies don’t? I’m talking to you Mitt Jehosephat Romney.