Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Long Term Interest Rates Are On The Up…What’s Next?

Interest-Rates / US Interest Rates Jun 23, 2015 - 04:12 PM GMT

By: Harry_Dent

Interest-Rates The Fed has delayed a rate hike yet again. It seems convinced the economy isn’t ready to survive on higher short-term rates. So we continue to see zero rates to stimulate more economic activity. But today the market is proving just how limited the Fed’s influence really is!

I’ve been warning for years now that there is a limit to how much you can stimulate the economy with free money and zero interest rate policies before the financial drugs no longer work. Eventually, the system breaks down from excessive debt and overexpansion.


There are two signs that this is finally happening. No. 1 is the beginning of debt defaults again, starting with Greece. No. 2 is that, despite continued zero short-term rate policies and endless QE around the world… long-term interest rates are finally rising.

These policies will fail. When it happens, it will result in debt deleveraging and deflation as we have written about extensively.

We saw this start to occur in late 2008… which is precisely why governments around the world stepped in with unprecedented zero interest rate and endless QE policies. They believed they could simply print enough money to offset the economic decline and debt deleveraging — using inflation to fight deflation.

We’ve seen 10-year Treasury yields go up from late January’s low of 1.65% to 2.47% last Wednesday. And they look likely to continue to rise, just as I’ve forecasted. This is not good for stock market valuations or real estate or the economy or the “frackers” that are due to bust ahead from falling oil prices. I believe we could see U.S. 10-year rates rise to as high as 3.3% or a bit higher in the months ahead.

But this rise in rates is worldwide… and it accelerated recently in Europe.

The greatest impact of the impending Greek debt default is not the “Grexit” threat hanging over the euro zone. It is that long-term sovereign interest rates have been rising across the board since April because of it.

Greek 10-year rates were first to rise and have jumped from 5.57% to 13.04% in the last several months. They reached 37.1% in 2012 when the last euro crisis hit… so how high will they go next time?

German bond yields went to an astoundingly low yield of 0.08% and have recently bounced to as high as 0.99%. Other bonds in the euro zone went up similarly as did Japanese bond yields. That’s a big move in a short period of time for Europe’s “healthiest” economy. And it very likely marks an important turning point in rates.

The way Greece’s potential debt defaults are spilling over to Portugal, Spain and Italy is the first cause of rising rates, and these defaults back-up on leading countries like Germany. As risk-free sovereign rates rise, corporate — and especially high yield or junk bond rates — rise more.

The second driver may be what I call “late-stage inflation.”

Inflation has almost always risen into the early stages of a recession — and we are either already in a recession or very close to it, as I discussed in the June Boom & Bust issue. Inflation pressures will likely rise a bit more as job growth remains strong (which I explained Tuesday won’t last forever). It’s a paradox. But that’s how we continue to get rising long-term interest rates at first, despite a slowing economy.

Besides all that, I know long-term rates are very likely to continue rising due to one of my best long-term indicators: the Treasury Bond Channel. When we get to the bottom of this channel, rates tend to rise. When they hit the top, they bounce back down. See for yourself...

The last bottom occurred in mid-2012 when 10-year Treasury rates hit 1.39%. The first rise was to 3.04% leading up into late 2013, then back down to 1.65% late this January. Then, as high as 2.47% last week.

I have been predicting they will rise to 3.3% to 3.4% by late 2015 or so. That will be another trigger for a deeper economic crisis and stock crash ahead. Such a move would simply be about the same spike I just mentioned between mid-2012 and late 2013. That would translate currently to a move from 1.65% to around 3.3%.

So this is not a wild forecast. It’s actually a very likely one.

If we do see such a rise it will be the time to load up on 30-year Treasury bonds to get the greatest yields (4%-plus) and capital gains from the deflationary crisis to follow.

That crisis could bring 10-year yields down towards 0% — the lowest in history. This won’t be as much from potential new and accelerated QE policies like we saw from 2008 through 2014. If QE happens again, it will be less potent. Voters may even resist it after the last QE policy failed so miserably. Rather, it will be more from negative average inflation rates of 2%-plus for the next several years.

So avoid the 10-year. We recommend 30-year Treasuries because they’ll have almost 1% higher yields than the 10-year and greater appreciation when deflation finally sets in and interest rates fall even further.

This play will be especially good for investors nearing or in retirement looking for solid yields and income. Forget buying high dividend stocks with 2% yields! They’ll get crucified in the years ahead and your dividends — if they don’t get cut — will look like nothing compared to your investment losses.

Just remember: Long term Treasury and high quality corporate bonds roughly doubled including interest in the 1930s. They were the only major asset class to go up in the last deflationary and winter season. It will happen again.

Be on alert for higher yields on the 30-year Treasury!

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2015 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Harry Dent Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules