Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

R.I.P. Interest Rates

Interest-Rates / US Interest Rates Sep 20, 2015 - 01:22 PM GMT

By: Investment_U

Interest-Rates

Andrew Snyder writes: I went to the doctor Friday morning. What a problem we have.

“How’s the pain? Do you want some pills for that?” he asked.

“No thanks, doc. Let’s just figure out what’s causing it.”


“How about stress? We can treat that, too.”

“No, doc. Unless you give those pills to somebody else, pills won’t fix my stress.”

I don’t blame the doctor. He’s doing his job. Most of his patients likely walk away with a stack of prescriptions and are happy with it... lots of different ways to hide what’s really going on.

Long-term solutions like eating right, exercising more and drinking less aren’t what we want to hear. We want a pill.

It’s a dangerous idea. But it’s certainly not something that’s constrained to the medical community. Oh no, laziness is a pandemic.

In fact, it’s how we got to the death of interest rates. Instead of fixing the problem, we took a pill.

On Thursday, Janet Yellen gave the American economy another whopping dose of free money... and permanently rewrote the rules of economics.

interest-rates-why-fed-decision-rewrote-rules-of-economics

For most American investors, Yellen’s decision was devastating. Not for the short-term effects - the markets barely moved on the news.

It’s the long term that has us worried. It’s now quite likely we will never see a return to normalcy in our lifetimes.

Thanks to the death of interest rates... gone are the days of “safe income.” Gone are the days of selling our “risky” stocks as we age. Gone are the days of traditional investing.

Take, for instance, a conversation I had at dinner on Thursday night. “We just bought an annuity,” my freshly retired friend said. “We’ll get $400 a month for the next 20 years.”

“Hmm,” I replied. “What did it cost you?”

“About $40,000. But we’ll get paid a total of $89,000.”

My first thought... wow, a 4% annual return; you got ripped off. But then I was reminded that these aren’t the rules of investing we grew up with. These days, a guaranteed 4% return isn’t something to sneeze at.

That has us worried. From here on out, we need to get creative about where we make our money.

On Friday, the Club’s Chief Investment Strategist Alex Green told readers about the virtues of investing in bonds at a time like this. He summarized the situation well.

“When the Federal Reserve took short-term rates to zero in the fall of 2008, no one was predicting that rates would still be that low seven years later.

“Yet they are. And rates could stay low a lot longer, especially since the futures markets are indicating that inflation will remain negligible for the next 10 years.

“Sounds unlikely? Think again. Add up slow economic growth, stagnant wages, a strong dollar, global outsourcing, cheap raw materials and plunging energy prices and see what you get.”

I think we know what we get... the need for more pills.

That, too, has us worried.

We wonder how long banks and insurance companies - nay, the entire financial system - can survive after the death of interest rates. How can an annuity provider offer 4% for 20 years when it needs to go way out on the risk spectrum just to earn 4%? How can a pension fund earn the 8% it needs without risking the ability to pay its pensioners today?

To be sure, Wall Street will use all sorts of derivatives to keep the system on life support, but eventually spreads will wither and the Street will be forced to pull the plug.

Yellen and her troops at the Fed know dirt-cheap money won’t fix what ails us. It only masks it... cheap money is a pill. It makes us feel better so we stop griping about the pain.

It’s now clear we’re addicted. There’s no way to quit the pain pills without forcing us into an all-out crisis.

That’s what has us worried.

R.I.P. interest rates.

Good investing,

Andrew

Source: http://www.investmentu.com/article/detail/47645/interest-rates-why-fed-decision-rewrote-rules-of-economics#.Vf7qmk3bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U 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