Are interest rates ever going back up?

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WS1
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Re: Are interest rates ever going back up?

Post by WS1 »

Back up to what? 5% per month like in ancient Babylon?
Has everyone read Against the Gods? As we’ve got better at identifying, managing, and insuring risk the rates should be lower.

Nominal or real rates? Unless we’re all inflation truthers now, shouldn’t we only be interested in the latter?
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Re: Are interest rates ever going back up?

Post by SovereignInvestor »

Ignore the noise about the Fed holding rates low. The market sets interest rates except fed funds overnight rate. And the fed basically follows the market as it always moved in direction majority of.market expected since 1994.

The market long term rates are low aND likely stay low indefinitely because of demographics which are disinflationary. Working age population grew around 2% for 1940s through 1990s. It went flat in around 2010 and now is projected to grow around 0.5% annually for coming decades. Hard for there to be inflation with these demographics. EU and Japan have negative workforce growth so they are seeing deflationary pressure and negative rates. US should be a lite version of that effect.
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Re: Are interest rates ever going back up?

Post by patrocity »

While jumping into the interest rate rabbit hole, I found this article about world historical interest rates.
https://www.armstrongeconomics.com/rese ... t-economy/
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Re: Are interest rates ever going back up?

Post by GT99 »

Define "go up" - they go up and down daily (depending on what exact rates you mean). My opinion is that they won't go up significantly (i.e. more than 1%) anytime soon (5+ years). More likely to go down. I also don't think we'll ever see significantly higher rates - it's a very different world than it was 20+ years ago. I'm not sure we'll see 30 year mortgage rates outside of 2.5%-6.5% range (yes, the implication is that I can see them going to all time lows) anytime in the next 30-40 years.

But just because I think that doesn't mean it's impacting my actions. It's definitely not impacting my investing actions. It does slightly increase my inclination to get an ARM mortgage (why pay more to guarantee a rate if I think it's a low likelihood of being much higher in 5 or 7 years). It's a game of odds. But I'm more pro-ARM than most to begin with.
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Re: Are interest rates ever going back up?

Post by oldcomputerguy »

nisiprius wrote: Thu Jan 23, 2020 1:29 pm In April of 2014, Bloomberg polled a panel of 68 economists on what they were forecasting for the ten-year Treasury rate over the next six months. 68 out of 68, 100%, unanimously, said it would be going up, the only question being how much.

It went down.

If 68 out of 68 economists could all be wrong, one might as well just shrug and say "nobody knows" or "it can't be predicted."
Reminds me of one of my favorite scenes from the TV show “The West Wing”:
Leo McGarry: Luther, ballpark, one year from today, where's the Dow?

Economist #1: Tremendous. Up a thousand.

Leo McGarry: Fred, one year from today?

Economist #2: Not good. Down a thousand.

Leo McGarry: A year from today at least one of you's gonna look pretty stupid.
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Re: Are interest rates ever going back up?

Post by watchnerd »

There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
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jdilla1107
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Re: Are interest rates ever going back up?

Post by jdilla1107 »

watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
20% of Vanguard Total Bond Market is allocated to long term bonds. So, a large number of forum members are invested in long term bonds.

In addition, I have personally been buying EE bonds for the last 10 years as an over allocation to long term fixed income like instruments.
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Re: Are interest rates ever going back up?

Post by watchnerd »

jdilla1107 wrote: Thu Jan 23, 2020 7:50 pm [
20% of Vanguard Total Bond Market is allocated to long term bonds. So, a large number of forum members are invested in long term bonds.
Sorry, I should have said:

"Excluding the bit already in TBM"
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Re: Are interest rates ever going back up?

Post by SovereignInvestor »

watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
No long bonds. Cyclically there's probably more downside risk for prices...10Y note is now 1.7% and manufacturing is currently in contraction. When manufacturing PMI turns back positive from.contraction currently, 10Y can easily get nicely over 2%. But long term hard for it to.sustain over 3% when rest of world is negative and given demographics. No long bonds now, only short term with flat curve (so tiny reward for taking on duration) but would look at longer duration if yields tick up a bit.

Also makes stocks more attractive because the S&P at 18.5x forward EPS isn't cheap historically but relative to 10Y yield at 1.7% it certainly does not seem expensive.
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Re: Are interest rates ever going back up?

Post by Marylander1 »

The Economist this month noted real interest rates have been unsteadily but persistently declining for centuries, and graphed them using Paul Schmelzing's data back to 1317.
"Rates falling since the early 1980s may be less the result of acute problems, such as an ageing population, than markets simply snapping back to a centuries-old trend."
https://www.economist.com/img/b/1280/13 ... FNC911.png

For those with an Economist login:
New research suggests that secular stagnation is centuries old
Central bankers’ biggest problem may be ancient—and getting worse
https://www.economist.com/finance-and-e ... turies-old

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Re: Are interest rates ever going back up?

Post by watchnerd »

Intellectually interesting...but I'm not sure how much confidence we should have in reconstructed interest rates prior to the Age of Enlightenment....or perhaps even prior to the Industrial Revolution.

I'm not sure if the economics of pre-industrial, Feudal societies where land ownership was the main means of production and 70%+ of the population were farmers are close enough to modern ones to make the comparison meaningful.

Or maybe this explains why nobody in the Star Trek universe talks about money.
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Re: Are interest rates ever going back up?

Post by bikechuck »

1789 wrote: Thu Jan 23, 2020 2:14 pm They will go down more before coming up
Can't go down much further without going negative and then we are in uncharted waters.
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Re: Are interest rates ever going back up?

Post by jeffyscott »

supersecretname wrote: Thu Jan 23, 2020 2:56 pm It's going to be at down levels for a while

https://www.frbsf.org/economic-research ... ly-rising/

"R-star is what economists call the natural rate of interest; it’s the real interest rate expected to prevail when the economy is at full strength. While a central bank like the Fed sets short-term interest rates, r-star is a result of longer-term economic factors beyond the influence of central banks and monetary policy"
..
"My own view is that r-star today is around 0.5%. Assuming inflation is running at our goal of 2%, that means the typical, or normal short-term interest rate is 2.5%. For comparison, the median longer-run value of the federal funds rate in the Federal Open Market Committee’s (FOMC’s) most recent economic projections is 2.875% (Board of Governors 2018b). When put into a historical context, r-star stands at an incredibly low level—in fact, a full 2 percentage points below what a normal interest rate looked like just 20 years ago. This trend is not unique to the United States: Averaging across Canada, the euro area, Japan, and the United Kingdom, a measure of global r-star is a bit below 0.5% (Holston, Laubach, and Williams 2017 and Fujiwara et al. 2016)."
Does a new normal of 0.5% real for short term rates imply anything about a new normal for longer term rates and the yield curve? Would a normal yield curve just be ~2 percentage points lower across the board? Currently we have around 0.5% real for long term rates, based on TIPS.

I saw the same idea, from another member of the FED, in a recent article:
...since last fall policymakers have marked down their estimates of the underlying long-run “neutral” rate of interest to around half a percentage point, once accounting for inflation. Bullard thinks it is more like zero, but the point is made: the world’s different than when inflation-adjusted rates of 2% to 3% were the norm.
https://www.reuters.com/article/us-usa- ... SKBN1ZG1EV
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Re: Are interest rates ever going back up?

Post by whodidntante »

bikechuck wrote: Thu Jan 23, 2020 8:59 pm
1789 wrote: Thu Jan 23, 2020 2:14 pm They will go down more before coming up
Can't go down much further without going negative and then we are in uncharted waters.
Much of non America has negative yields on the safest bonds. So we have the beginnings of a map, but America is not yet on it.
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Re: Are interest rates ever going back up?

Post by abuss368 »

If we knew for sure and when we could all take a position on the yield curve and beat the market!

No one knows when, if ever.
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Re: Are interest rates ever going back up?

Post by DB2 »

burt wrote: Thu Jan 23, 2020 6:14 pm
Yes, I always thought that when you printed money, interest rates and inflation go up.
Maybe it's just a matter of time.
I recall Ben Bernanke's comments of asset inflation goals (or words to that effect) which is where it seemed to go. As others have pointed out, aging demographics and improved technology has probably helped keep it down elsewhere. Seems to be the case in Japan as well.
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Re: Are interest rates ever going back up?

Post by oken »

jubby288 wrote: Thu Jan 23, 2020 2:47 pm
watchnerd wrote: Thu Jan 23, 2020 2:31 pm
jubby288 wrote: Thu Jan 23, 2020 2:10 pm FWIW, Reuters has quoted Bernanke in saying that he doesn't believe the fed funds rate will rise back to the long term average of 4% within his lifetime

JB
Bernanke is 66.

How long do we think Ben will live?

To 85?
Yes, sounds about right

So, lets say that another way

Former fed chairman Ben Bernanke believes its probable that we have at least 2 more decades of low rates


JB
This depends heavily on how long Ben thinks he will live doesn't it? Maybe his family is pretty long lived in general? Maybe they have a medical history.

Nobody knows nothing. (Except Ben)
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Re: Are interest rates ever going back up?

Post by SovereignInvestor »

DB2 wrote: Thu Jan 23, 2020 11:19 pm
burt wrote: Thu Jan 23, 2020 6:14 pm
Yes, I always thought that when you printed money, interest rates and inflation go up.
Maybe it's just a matter of time.
I recall Ben Bernanke's comments of asset inflation goals (or words to that effect) which is where it seemed to go. As others have pointed out, aging demographics and improved technology has probably helped keep it down elsewhere. Seems to be the case in Japan as well.
Commercial banks print the most money when they lend. In the older boom years per GFC total credit in system was growing $5T/year. Now it isn't growing, just the $1T from federal government, private debt is barely budging up.

This reflects demographics....that's why there's no inflation. Also, as other mentioned, the globe is so competitive that any inflation would be more likely to be stomped out than 30 years ago. Amazon effect is a big disinflationary force.
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Re: Are interest rates ever going back up?

Post by Ferdinand2014 »

There is no way to know and any use of predictions to make changes in your portfolio would be at best a poor guess.
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Re: Are interest rates ever going back up?

Post by jubby288 »

watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
For domestic equity I buy PSLDX where I have access and S&P 500 everywhere else

JB
Last edited by jubby288 on Fri Jan 24, 2020 6:38 am, edited 1 time in total.
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Re: Are interest rates ever going back up?

Post by jubby288 »

SovereignInvestor wrote: Thu Jan 23, 2020 6:19 pm Ignore the noise about the Fed holding rates low. The market sets interest rates except fed funds overnight rate. And the fed basically follows the market as it always moved in direction majority of.market expected since 1994.

The market long term rates are low aND likely stay low indefinitely because of demographics which are disinflationary. Working age population grew around 2% for 1940s through 1990s. It went flat in around 2010 and now is projected to grow around 0.5% annually for coming decades. Hard for there to be inflation with these demographics. EU and Japan have negative workforce growth so they are seeing deflationary pressure and negative rates. US should be a lite version of that effect.
In addition to slightly better demographics, immigration inflow should help the U.S.

JB
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Re: Are interest rates ever going back up?

Post by SovereignInvestor »

jubby288 wrote: Fri Jan 24, 2020 6:38 am
SovereignInvestor wrote: Thu Jan 23, 2020 6:19 pm Ignore the noise about the Fed holding rates low. The market sets interest rates except fed funds overnight rate. And the fed basically follows the market as it always moved in direction majority of.market expected since 1994.

The market long term rates are low aND likely stay low indefinitely because of demographics which are disinflationary. Working age population grew around 2% for 1940s through 1990s. It went flat in around 2010 and now is projected to grow around 0.5% annually for coming decades. Hard for there to be inflation with these demographics. EU and Japan have negative workforce growth so they are seeing deflationary pressure and negative rates. US should be a lite version of that effect.
In addition to slightly better demographics, immigration inflow should help the U.S.

JB
Yes immigration helps the US but that is why US has had slightly population growth recently. Organically with birth rates US population would be about flat and eventually decline but with immigration it trickles positive.

EU and Japan have major issues.

But 1970s and 1980s had working age population growing about 3% annually, a US economy that was much more commodity dependent (oil as percent of GDP much higher), a unionized work force and a big wall in Germany cutting off half the world which reduced efficiency of markets.

Now in 2020, the world has booming free trade such that if any producer tries raising prices someone somewhere in world can undercut them. Prevents inflation. Unions have little bite. Oil is about half as important relative to GDP as 30-40 years ago, and working age population has been flat and is poised to grow about 0.5%, and rest of world battling deflation.

2020 is nearly polar opposite as 1970s.
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Re: Are interest rates ever going back up?

Post by Grt2bOutdoors »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
Corporate debt is out of control? Source?
Those companies which are highly levered today would in most cases either not have existed in the past or would have borrowed just as much in terms of Debt/Ebitda or interest coverage ratios. The investment grade companies are investment grade for a reason, they have strong cash flows through the cycle enabling them to make timely payments as required. The weaker companies are those who can pay in good to strong economic conditions but which may experience difficulties should the winds of fortune change.

The weakest companies we know are called junk for a reason.
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Re: Are interest rates ever going back up?

Post by Grt2bOutdoors »

jubby288 wrote: Fri Jan 24, 2020 6:33 am
watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
For domestic equity I buy PSLDX where I have access and S&P 500 everywhere else

JB
What is PSLDX?
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Re: Are interest rates ever going back up?

Post by Grt2bOutdoors »

SovereignInvestor wrote: Thu Jan 23, 2020 11:53 pm
DB2 wrote: Thu Jan 23, 2020 11:19 pm
burt wrote: Thu Jan 23, 2020 6:14 pm
Yes, I always thought that when you printed money, interest rates and inflation go up.
Maybe it's just a matter of time.
I recall Ben Bernanke's comments of asset inflation goals (or words to that effect) which is where it seemed to go. As others have pointed out, aging demographics and improved technology has probably helped keep it down elsewhere. Seems to be the case in Japan as well.
Commercial banks print the most money when they lend. In the older boom years per GFC total credit in system was growing $5T/year. Now it isn't growing, just the $1T from federal government, private debt is barely budging up.

This reflects demographics....that's why there's no inflation. Also, as other mentioned, the globe is so competitive that any inflation would be more likely to be stomped out than 30 years ago. Amazon effect is a big disinflationary force.
A significant portion of the lending though is being done through non-bank financial intermediaries-pension plans, private equity and family offices. There is a lot of money waiting on the sidelines for the opportunity to invest at favorable yields. This is a side effect of low global yields normally obtained from more traditional sources.
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Re: Are interest rates ever going back up?

Post by oldcomputerguy »

Grt2bOutdoors wrote: Fri Jan 24, 2020 8:57 am What is PSLDX?
PIMCO StocksPLUS® Long Duration Fund
Taking an innovative approach to large-cap investing, the Fund combines active and passive management in S&P 500 derivatives, such as futures and swaps, collateralized by an actively managed portfolio of long-term bonds. The strategy offers broad participation in the growth potential of U.S. stocks, potential diversification benefits and access to PIMCO’s expertise in seeking positive excess return.
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Re: Are interest rates ever going back up?

Post by JoeRetire »

GT99 wrote: Thu Jan 23, 2020 6:27 pmI also don't think we'll ever see significantly higher rates - it's a very different world than it was 20+ years ago. I'm not sure we'll see 30 year mortgage rates outside of 2.5%-6.5% range (yes, the implication is that I can see them going to all time lows) anytime in the next 30-40 years.
As I always say - "ever" is a long time.

It's a very different world than it was 20+ years ago. And it will be a very different world 20+ years from now.
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Re: Are interest rates ever going back up?

Post by flaccidsteele »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
It’ll be low for the next decade
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Re: Are interest rates ever going back up?

Post by Northern Flicker »

gmaynardkrebs wrote: Thu Jan 23, 2020 11:29 am Unless we see some serious inflation (eg., near 3%), which I don't anywhere see on the horizon, I think they will stay low.
Actually, just seeing the possibility of inflation on the horizon would be sufficient to push rates higher.
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Re: Are interest rates ever going back up?

Post by Valuethinker »

Grt2bOutdoors wrote: Fri Jan 24, 2020 8:55 am
ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
Corporate debt is out of control? Source?
Those companies which are highly levered today would in most cases either not have existed in the past or would have borrowed just as much in terms of Debt/Ebitda or interest coverage ratios. The investment grade companies are investment grade for a reason, they have strong cash flows through the cycle enabling them to make timely payments as required. The weaker companies are those who can pay in good to strong economic conditions but which may experience difficulties should the winds of fortune change.

The weakest companies we know are called junk for a reason.
The majority of Investment Grade Corporate bonds are now BBB ? There's definitely been a deterioration of credit quality over the cycle.

A big chunk of high yield bonds are in the energy sector? What telecoms was in 2000-03 is now oil & gas fracking? Thus sensitive to one particular variable - the price of oil. Demand does not matter so much (because it is global, and fairly economically insensitive) rather it is price.

I worry about the LBO loans sector. Cov lite, so lite it levitates. And the finance-of-choice for every LBO-meister private equity meister out there.
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Re: Are interest rates ever going back up?

Post by Valuethinker »

Grt2bOutdoors wrote: Fri Jan 24, 2020 9:01 am
SovereignInvestor wrote: Thu Jan 23, 2020 11:53 pm
DB2 wrote: Thu Jan 23, 2020 11:19 pm
burt wrote: Thu Jan 23, 2020 6:14 pm
Yes, I always thought that when you printed money, interest rates and inflation go up.
Maybe it's just a matter of time.
I recall Ben Bernanke's comments of asset inflation goals (or words to that effect) which is where it seemed to go. As others have pointed out, aging demographics and improved technology has probably helped keep it down elsewhere. Seems to be the case in Japan as well.
Commercial banks print the most money when they lend. In the older boom years per GFC total credit in system was growing $5T/year. Now it isn't growing, just the $1T from federal government, private debt is barely budging up.

This reflects demographics....that's why there's no inflation. Also, as other mentioned, the globe is so competitive that any inflation would be more likely to be stomped out than 30 years ago. Amazon effect is a big disinflationary force.
A significant portion of the lending though is being done through non-bank financial intermediaries-pension plans, private equity and family offices. There is a lot of money waiting on the sidelines for the opportunity to invest at favorable yields. This is a side effect of low global yields normally obtained from more traditional sources.
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Re: Are interest rates ever going back up?

Post by DB2 »

Low interests have created an environment for record high corporate debt. BBB (lowest investment grade) accounts for about half of the market. If these BBB get downgraded in the next downturn, it will be interesting.

https://markets.businessinsider.com/new ... 1028731031

Consumer and student level debt high too: https://www.marketwatch.com/story/us-co ... 2019-06-19

And we all know about government level debt. Deficits have grown to a trillion dollars a year in an 11-year growing economy where they should be shrinking, but what happens to them in the next downturn? It almost seems mind-boggling.
Last edited by DB2 on Fri Jan 24, 2020 9:44 am, edited 1 time in total.
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Re: Are interest rates ever going back up?

Post by Valuethinker »

SovereignInvestor wrote: Fri Jan 24, 2020 8:04 am
jubby288 wrote: Fri Jan 24, 2020 6:38 am
SovereignInvestor wrote: Thu Jan 23, 2020 6:19 pm Ignore the noise about the Fed holding rates low. The market sets interest rates except fed funds overnight rate. And the fed basically follows the market as it always moved in direction majority of.market expected since 1994.

The market long term rates are low aND likely stay low indefinitely because of demographics which are disinflationary. Working age population grew around 2% for 1940s through 1990s. It went flat in around 2010 and now is projected to grow around 0.5% annually for coming decades. Hard for there to be inflation with these demographics. EU and Japan have negative workforce growth so they are seeing deflationary pressure and negative rates. US should be a lite version of that effect.
In addition to slightly better demographics, immigration inflow should help the U.S.

JB
Yes immigration helps the US but that is why US has had slightly population growth recently. Organically with birth rates US population would be about flat and eventually decline but with immigration it trickles positive.

EU and Japan have major issues.

But 1970s and 1980s had working age population growing about 3% annually, a US economy that was much more commodity dependent (oil as percent of GDP much higher), a unionized work force and a big wall in Germany cutting off half the world which reduced efficiency of markets.

Now in 2020, the world has booming free trade such that if any producer tries raising prices someone somewhere in world can undercut them. Prevents inflation. Unions have little bite. Oil is about half as important relative to GDP as 30-40 years ago, and working age population has been flat and is poised to grow about 0.5%, and rest of world battling deflation.

2020 is nearly polar opposite as 1970s.
There was another x factor and I think it was the USA coming out of the Vietnam War.

1968 there was (more than) full employment (many fewer women worked outside the home) with a large number of 18 year olds in military service or on college deferment and the economy booming. President Lyndon Johnson opted not to raise taxes to finance the Great Society programmes at the same time as the Vietnam War headed towards peak American involvement. Inflation rose.

Thus was born an inflationary psychology.

Although President Nixon would cut defence spending later as American involvement in Vietnam ran down, he prevailed upon Arthur Burns at the Fed not to raise interest rates during the reelection campaign of 1972 (Nixon was sure that the Fed had cost him his presidential victory in 1960 against Kennedy), and he did not cut civilian spending - he spent liberally to win that reelection.

With the economy out of recession and near full capacity inflation again rose.

And then came the double whammy. First the Oil Crisis and the October 1973 Arab-Israeli war and the oil embargo. Oil pric from $3.00 to $12.00/ barrel almost overnight.

And then the USSR had a harvest failure. To prevent widespread starvation and unrest, in 1973 the Soviet Union sent its buyers into western wheat markets, driving the price of food (a much larger percentage of the average US household budget than now) shooting up for all consumers.

Couple that with trade union negotiated CPI-linked labour contracts, and you had the recipe for embedded inflation.
Valuethinker
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Re: Are interest rates ever going back up?

Post by Valuethinker »

DB2 wrote: Fri Jan 24, 2020 9:38 am Low interests have created an environment for record high corporate debt. BBB (lowest investment grade) accounts for about half of the market. If these BBB get downgraded in the next downturn, it will be interesting.

https://markets.businessinsider.com/new ... 1028731031

Consumer level debt high too: https://www.marketwatch.com/story/us-co ... 2019-06-19
From the stats I have seen US consumer debt seems less of a worry. Still nowhere close to 2006 if we include housing debt?

There are however some real sectoral crises. Sub prime car loan lending in particular - loans that last far longer than the owners will have the cars. In a recession or credit downturn that could start to really hurt.

Other areas of consumer finance I believe as well as the everpresent student loan problem.

Consumer debt in other countries, especially Canada, seems to be much more of an issue. And the Chinese have built up the largest debts of all time - there's a huge amount of credit in the Chinese economy both by companies but also individuals, and state and local governments. That latter debt is arguably uncollectable if it defaults (some state owned lending authority will have to absorb the losses that are not taken by private investors).
DB2
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Re: Are interest rates ever going back up?

Post by DB2 »

Valuethinker wrote: Fri Jan 24, 2020 9:45 am
DB2 wrote: Fri Jan 24, 2020 9:38 am Low interests have created an environment for record high corporate debt. BBB (lowest investment grade) accounts for about half of the market. If these BBB get downgraded in the next downturn, it will be interesting.

https://markets.businessinsider.com/new ... 1028731031

Consumer level debt high too: https://www.marketwatch.com/story/us-co ... 2019-06-19
From the stats I have seen US consumer debt seems less of a worry. Still nowhere close to 2006 if we include housing debt?

There are however some real sectoral crises. Sub prime car loan lending in particular - loans that last far longer than the owners will have the cars. In a recession or credit downturn that could start to really hurt.

Other areas of consumer finance I believe as well as the everpresent student loan problem.

Consumer debt in other countries, especially Canada, seems to be much more of an issue. And the Chinese have built up the largest debts of all time - there's a huge amount of credit in the Chinese economy both by companies but also individuals, and state and local governments. That latter debt is arguably uncollectable if it defaults (some state owned lending authority will have to absorb the losses that are not taken by private investors).
It does appear U.S. private debt has been leveling a bit downward in recent years or since the financial crisis according to the IMF.

Pretty cool site actually.

https://www.imf.org/external/datamapper ... DD/ARE/USA
Last edited by DB2 on Fri Jan 24, 2020 9:54 am, edited 1 time in total.
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gmaynardkrebs
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

Northern Flicker wrote: Fri Jan 24, 2020 9:22 am
gmaynardkrebs wrote: Thu Jan 23, 2020 11:29 am Unless we see some serious inflation (eg., near 3%), which I don't anywhere see on the horizon, I think they will stay low.
Actually, just seeing the possibility of inflation on the horizon would be sufficient to push rates higher.
Not necessarily. The Fed wants to boost inflation, and investors may think that it will suppress nominal rates via QE to achieve that.
Chicken Little
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Re: Are interest rates ever going back up?

Post by Chicken Little »

Valuethinker wrote: Fri Jan 24, 2020 9:32 amCov lite
Covenant-Lite Loans. Was reading this morning...

https://www.zerohedge.com/markets/180-b ... ed-without
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watchnerd
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Re: Are interest rates ever going back up?

Post by watchnerd »

jubby288 wrote: Fri Jan 24, 2020 6:33 am
watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
For domestic equity I buy PSLDX where I have access and S&P 500 everywhere else

JB
I'm confused.....those are stock funds, while the question was about bonds...
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
DB2
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Re: Are interest rates ever going back up?

Post by DB2 »

Chicken Little wrote: Fri Jan 24, 2020 9:58 am
Valuethinker wrote: Fri Jan 24, 2020 9:32 amCov lite
Covenant-Lite Loans. Was reading this morning...

https://www.zerohedge.com/markets/180-b ... ed-without
Regarding repo: https://www.nasdaq.com/articles/the-fed ... 2020-01-20
jubby288
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Re: Are interest rates ever going back up?

Post by jubby288 »

watchnerd wrote: Fri Jan 24, 2020 10:11 am
jubby288 wrote: Fri Jan 24, 2020 6:33 am
watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
For domestic equity I buy PSLDX where I have access and S&P 500 everywhere else

JB
I'm confused.....those are stock funds, while the question was about bonds...
Don't want to derail thread, so real quick PSLDX is 100% actively managed long bonds, 100% S&P, and -100% cash


JB
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Re: Are interest rates ever going back up?

Post by jeffyscott »

watchnerd wrote: Thu Jan 23, 2020 7:14 pm There seem to be a lot of folks on this thread who think rates aren't going up any time soon.

For those that feel that way, are you allocating to long bonds?

If not, why not?
I guess I would say that there seems to be little benefit with the yield curve as flat as it is. And I guess think rates will be at least marginally higher at some point, maybe back to routinely getting 3%+ for 3-5 year CDs and treasuries
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
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bertilak
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Re: Are interest rates ever going back up?

Post by bertilak »

To paraphrase the legendary John D. Rockefeller:

I believe the market interest rates will fluctuate.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Grt2bOutdoors
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Re: Are interest rates ever going back up?

Post by Grt2bOutdoors »

Valuethinker wrote: Fri Jan 24, 2020 9:45 am
DB2 wrote: Fri Jan 24, 2020 9:38 am Low interests have created an environment for record high corporate debt. BBB (lowest investment grade) accounts for about half of the market. If these BBB get downgraded in the next downturn, it will be interesting.

https://markets.businessinsider.com/new ... 1028731031

Consumer level debt high too: https://www.marketwatch.com/story/us-co ... 2019-06-19
From the stats I have seen US consumer debt seems less of a worry. Still nowhere close to 2006 if we include housing debt?

There are however some real sectoral crises. Sub prime car loan lending in particular - loans that last far longer than the owners will have the cars. In a recession or credit downturn that could start to really hurt.

Other areas of consumer finance I believe as well as the everpresent student loan problem.

Consumer debt in other countries, especially Canada, seems to be much more of an issue. And the Chinese have built up the largest debts of all time - there's a huge amount of credit in the Chinese economy both by companies but also individuals, and state and local governments. That latter debt is arguably uncollectable if it defaults (some state owned lending authority will have to absorb the losses that are not taken by private investors).
It was in the paper on either Wednesday or Thursday (WSJ) that there are 24 banks in China which collectively need an additional $339 billion in capital to reserve against bad loans made on extra favorable terms (to the borrower of course :oops: ). 24!! Not 1 or 2! I'd say the Chinese banking system is in drastic need of an entire overhaul.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
JonnyB
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Re: Are interest rates ever going back up?

Post by JonnyB »

Some people speak about interest as if it is some sort of entitlement. It isn't. It is a business transaction. If people want your money they will pay you interest. If they don't want your money, they will pay you little or no interest.

The fact is right now, nobody (or rather too few) wants your stinkin' money. You don't deserve interest just because you want it.
SovereignInvestor
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Re: Are interest rates ever going back up?

Post by SovereignInvestor »

Valuethinker wrote: Fri Jan 24, 2020 9:45 am
DB2 wrote: Fri Jan 24, 2020 9:38 am Low interests have created an environment for record high corporate debt. BBB (lowest investment grade) accounts for about half of the market. If these BBB get downgraded in the next downturn, it will be interesting.

https://markets.businessinsider.com/new ... 1028731031

Consumer level debt high too: https://www.marketwatch.com/story/us-co ... 2019-06-19
From the stats I have seen US consumer debt seems less of a worry. Still nowhere close to 2006 if we include housing debt?

There are however some real sectoral crises. Sub prime car loan lending in particular - loans that last far longer than the owners will have the cars. In a recession or credit downturn that could start to really hurt.

Other areas of consumer finance I believe as well as the everpresent student loan problem.

Consumer debt in other countries, especially Canada, seems to be much more of an issue. And the Chinese have built up the largest debts of all time - there's a huge amount of credit in the Chinese economy both by companies but also individuals, and state and local governments. That latter debt is arguably uncollectable if it defaults (some state owned lending authority will have to absorb the losses that are not taken by private investors).
I hope the thesis isn't household debt is the most burdensome ever so a downturn is near. That's the opposite!


Household debt service to income ratio is the lowest ever going back to 1980!

https://fred.stlouisfed.org/series/TDSP

As for corporations the corprate debt maturities are the longest ever and interest expense to EBITDA is among the lowest since 1990.

The debt doesn't appear to be burdensome in anyway...it is historically low.


Yes federal debt keeps surging but for a country that has 100T+ of household wealth...what's 21T of national debt at 1-2% interest rates going to do?
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DartThrower
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Re: Are interest rates ever going back up?

Post by DartThrower »

"U.S. Treasury bubble one for the ages...
When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s, but the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.”

-Warren Buffett

I'm glad I took Buffett's advice on stocks, but this statement about treasury bonds still sticks in my mind. Perhaps he was right, just a decade or three early?
Our patience will achieve more than our force. -Edmund Burke
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Re: Are interest rates ever going back up?

Post by Northern Flicker »

gmaynardkrebs wrote: Fri Jan 24, 2020 9:54 am
Northern Flicker wrote: Fri Jan 24, 2020 9:22 am
gmaynardkrebs wrote: Thu Jan 23, 2020 11:29 am Unless we see some serious inflation (eg., near 3%), which I don't anywhere see on the horizon, I think they will stay low.
Actually, just seeing the possibility of inflation on the horizon would be sufficient to push rates higher.
Not necessarily. The Fed wants to boost inflation, and investors may think that it will suppress nominal rates via QE to achieve that.
If the fed sees inflation on the horizon, they won’t be initiating QE.
Risk is not a guarantor of return.
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gmaynardkrebs
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

Northern Flicker wrote: Sun Jan 26, 2020 12:18 am
gmaynardkrebs wrote: Fri Jan 24, 2020 9:54 am
Northern Flicker wrote: Fri Jan 24, 2020 9:22 am
gmaynardkrebs wrote: Thu Jan 23, 2020 11:29 am Unless we see some serious inflation (eg., near 3%), which I don't anywhere see on the horizon, I think they will stay low.
Actually, just seeing the possibility of inflation on the horizon would be sufficient to push rates higher.
Not necessarily. The Fed wants to boost inflation, and investors may think that it will suppress nominal rates via QE to achieve that.
If the fed sees inflation on the horizon, they won’t be initiating QE.
The Fed has a dual mandate. Mindful of forum policy, please PM if you wish to pursue further.
beth65
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Re: Are interest rates ever going back up?

Post by beth65 »

This is not meant to be political, but clearly there is a lot of pressure to keep rates low or even ZIRP.

“Trump also spoke about the U.S. being forced to compete with nations that are getting negative rates: “They get paid to borrow money, something I could get used to very quickly,” he said. “Love that.”

https://www.forbes.com/sites/sergeikleb ... 27fad919eb


Here’s a good analysis of the interest rates, at least in the next few years:

“If the U.S. economy entered a recession soon and interest rates fell in line with levels seen during the moderate recessions of 1990 and 2001, yields on even longer-dated Treasury securities could fall to or below zero.” – Senior Fed Economist, Michael Kiley – January 20, 2020”

https://seekingalpha.com/article/431854 ... ng-to-zero

Repo markets:
https://seekingalpha.com/article/429976 ... -liquidity
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