Predictions for the next 6 months (spoiler: interest rates will rise)

[millennialinvestor]

The Coronavirus will have a large impact on society but the economic impact will not be a dire as many believe.

Prudent policy actions will bring about a managed return to the economic activity. Herd immunity will build and most concerns about the dangers of the virus will subside by the summertime or earlier. Obviously some segments of the population are at much higher risk than others, and the government will do what it can do protect these people.

As economic activity resumes and fears about the virus subside the stock market will rebound, albeit in an irrational way. Investors need to exercise caution. Many companies are not positioned for growth and success in this new economy.

Finally, the unprecedented and coordinated actions taken by the government and Federal Reserve: stimulus package, rate cuts and QE will almost certainly lead to inflation. Interest rates will almost certainly need to rise as a result of this.

We all know that increases in interest rates are correlated with decreases in asset prices. I think we could very well see a multi year bear market.

[aristotelian]

So interest rates will rise as a result of interest rates being low and Fed buying bonds? Not saying you are wrong but how does that work?

[millennialinvestor]

So interest rates will rise as a result of interest rates being low and Fed buying bonds? Not saying you are wrong but how does that work?

Rates will need to rise to slow down inflation. I see inflation in just about every scenario.

If there is no inflation risk at all we are going to experience a serious multiyear recession that will crash the stock market regardless. I happen to think we will return to a level of normalcy by the late spring / early summer though.

[anon_investor]

Didn't the Fed drop rates to 0 in 2008/2009? Interest rates took a long time to raise from then...

[Seasonal]

We'll probably see the same rising inflation and interest rates as we saw following the 2008 GFC and the fiscal and monetary responses.

[millennialinvestor]

Didn't the Fed drop rates to 0 in 2008/2009? Interest rates took a long time to raise from then...

That crisis was more of a banking failure and it took years to build confidence. I think there was also a significant push to increase asset prices by the powers at be back then. This time is different the electorate will not let that happen (due to demographics).

[junior]

You lost me when you predicted herd immunity by summer without a citation.

[millennialinvestor]

So long-term I can see a multi year bear market and I can see many companies going bankrupt or restructuring. Corporate debt is a concern.

Luckily the banks are in reasonably good shape and will weather the storm.

Dynamic small businesses will hire many workers and offer competitive wages and the general public will favour these companies.

[rascott]

LOL.... Japan would have hyperinflation if anything posted here was true.

Another person that doesn't understand anything about inflation. 12 years and running.....

[millennialinvestor]

You lost me when you predicted herd immunity by summer without a citation.

I don't have a citation on hand but I think the virus is much more wide spread than many are aware. The statistics in the media are based on cases (testing is not widespread).

Since the virus leads to very few hospitalizations among healthy 18-40 year olds I think this segment of the population will soon return to work. They will spread the virus amongst themselves, thus building herd immunity.

[rascott]

So long-term I can see a multi year bear market and I can see many companies going bankrupt or restructuring. Corporate debt is a concern.

Luckily the banks are in reasonably good shape and will weather the storm.

Dynamic small businesses will hire many workers and offer competitive wages and the general public will favour these companies.

People and companies deeply in debt would praying for inflation.

[millennialinvestor]

LOL.... Japan would have hyperinflation if anything posted here was true.

Another person that doesn't understand anything about inflation. 12 years and running.....

When did Japan hand out $1000 cheques en masse to the public?

[bugleheadd]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

[millennialinvestor]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

I'm more concerned about the cheques. However, I think QE + rate cut was a bit too much and they effectively over juiced the economy.

[anon_investor]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

I'm more concerned about the cheques. However, I think QE + rate cut was a bit too much and they effectively over juiced the economy.

So what are you going to do about it? (Meaning what are you going to invest in?)

[rascott]

LOL.... Japan would have hyperinflation if anything posted here was true.

Another person that doesn't understand anything about inflation. 12 years and running.....

When did Japan hand out $1000 cheques en masse to the public?

The US had done this multiple times in the last 20 years. Where was the inflation?

The checks are like $300b. Not enough to come close to filling the hole in a $20T economy being closed down for a couple months.

[fatcoffeedrinker]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

I'm more concerned about the cheques. However, I think QE + rate cut was a bit too much and they effectively over juiced the economy.

The checks are to replace lost income and keep aggregate demand from falling too much due to the virus. How does that create inflation?

[Trader Joe]

The Coronavirus will have a large impact on society but the economic impact will not be a dire as many believe.

Prudent policy actions will bring about a managed return to the economic activity. Herd immunity will build and most concerns about the dangers of the virus will subside by the summertime or earlier. Obviously some segments of the population are at much higher risk than others, and the government will do what it can do protect these people.

As economic activity resumes and fears about the virus subside the stock market will rebound, albeit in an irrational way. Investors need to exercise caution. Many companies are not positioned for growth and success in this new economy.

Finally, the unprecedented and coordinated actions taken by the government and Federal Reserve: stimulus package, rate cuts and QE will almost certainly lead to inflation. Interest rates will almost certainly need to rise as a result of this.

We all know that increases in interest rates are correlated with decreases in asset prices. I think we could very well see a multi year bear market.

Can you provide this forum with any evidence of your predictive accuracy?

[AspireToRetire]

So interest rates will rise as a result of interest rates being low and Fed buying bonds? Not saying you are wrong but how does that work?

Rates will need to rise to slow down inflation. I see inflation in just about every scenario.

If there is no inflation risk at all we are going to experience a serious multiyear recession that will crash the stock market regardless. I happen to think we will return to a level of normalcy by the late spring / early summer though.

Interesting.

Through the crash the only thing that consistently held its value is cash and you have been hearing over and over that “cash is king.”

So if people end up hoarding cash, dont want to buy gold, equities, or treasuries; and can’t spend because everything is shut down - doesn’t that lead to Deflation?

[potatopancake]

Pick your poison: herd immunity is reached through natural spread of disease causing millions of deaths ore we socially distance ourselves into a vaccine is ready. This is an 18 month plan. We will be back to normal by 2022 and I am not placing bets on a timeline before that day.

Most people will get back to work, either continuing to stay at home or through increased testing and widespread serology testing. Some people will remain out of work and the government will be forced to increase social nets.

All entertainment industry will be badly hurt and many small businesses focused on consumption will be forced to shut down.

I have a fairly grim view of the next year and half. We should return to a more normal existence before the next election but this could dramatically shape our election in November and policy decisions over the next few years.

[gmaynardkrebs]

So interest rates will rise as a result of interest rates being low and Fed buying bonds? Not saying you are wrong but how does that work?

Rates will need to rise to slow down inflation. I see inflation in just about every scenario.

If there is no inflation risk at all we are going to experience a serious multiyear recession that will crash the stock market regardless. I happen to think we will return to a level of normalcy by the late spring / early summer though.

Interesting.

Through the crash the only thing that consistently held its value is cash and you have been hearing over and over that “cash is king.”

So if people end up hoarding cash, dont want to buy gold, equities, or treasuries; and can’t spend because everything is shut down - doesn’t that lead to Deflation?

if factories and farms are shut down, that would create a supply shock, which would be inflationary. So there would be a tug of war between inflationary and deflationary forces of excess savings. If I could tell you which will win, I would, but it’s a secret I’m keeping to myself so I can become a billionaire.

[willthrill81]

It seems like just two years ago when everyone was sure that interest rates were destined to rise, and many moved into short-term bonds as a result. I commented back then that interest rates could go in either direction.

You know what happened last year.

Nobody can predict the direction of interest rates.

[Silence Dogood]

It is impossible to predict future interest rates.

People have been saying "interest rates can only go up" for over a decade.

[typical.investor]

Finally, the unprecedented and coordinated actions taken by the government and Federal Reserve: stimulus package, rate cuts and QE will almost certainly lead to inflation. Interest rates will almost certainly need to rise as a result of this.

Were you even paying attention in 2008?

Yawn.

My prediction for inflation is that we may see it globally should countries decide to create/protect domestic production of critical goods and limit imports of competition. Take food imports. Exports are being banned in fear and should the importing countries decide they need to always have a self sufficient supply of food, they may work to reduce exports in the future which could have all kinds of trade implications which have access to agriculture markets as a requirement by the US.

[jebmke]

Whenever someone says "certainly" and "we all know" they lose me.

[typical.investor]

Whenever someone says "certainly" and "we all know" they lose me.

Yes, we all know that such generalizations certainly have no meaning. I agree.

[gmaynardkrebs]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

[Bernard]

I very much doubt that interest rates will be rising anytime soon. On the contrary, there are quite a few predictions that we will experience super low mortgage rates of 3% / 30yr. fixed within the coming few months. To be honest, I'm holding out my refinancing for this.

[Ocean77]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

[bugleheadd]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

I'm more concerned about the cheques. However, I think QE + rate cut was a bit too much and they effectively over juiced the economy.

there was plenty of cheques going out back then... if i recall extended from 26 to 99 weeks of paid unemployement back in 08/09. plus multiple QE, plus interest rate cuts to zero. yet no hyperinflation. annual inflation in low digits. why is that?

[millennialinvestor]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

When people buy "short" they think rates will rise. When they buy "long" they think rates will go down

[gmaynardkrebs]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

https://en.wikipedia.org/wiki/Expectations_hypothesis

[Ocean77]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

When people buy "short" they think rates will rise. When they buy "long" they think rates will go down

And then half of them will be wrong, on average.

[Silence Dogood]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

What good is "best prediction" though? Has the yield curve accurately predicted future interest rates in the past?

Perhaps I should have written:

It is impossible to accurately predict future interest rates.

[mac808]

Rates will need to rise to slow down inflation. I see inflation in just about every scenario.

If there is no inflation risk at all we are going to experience a serious multiyear recession that will crash the stock market regardless. I happen to think we will return to a level of normalcy by the late spring / early summer though.

It's hard to predict a scenario that would create meaningful inflation in consumer goods. Post-2008 QE-driven inflation drained into certain markets: housing, health care, education (colleges), and financial assets (stock prices). I am on the record stating my prediction that health care and education are tapped out. Health care became so expensive that it hit a political ceiling (Medicare for All). Education became so expensive it hit practical push back from consumers -- that is, kids and families started to opt out of expensive private schools. (As University education became more prevalent it also lost its utility as a signaling tool, reducing its value even as the price increased.) Our surviving markets, housing and financial assets, may have to put in twice the effort in the decade ahead. I think the Fed is neutral on housing. I think the Fed desperately wants to re-inflate financial assets. Not only because of political pressure but because of systemic problems that arise if asset prices remain low (e.g. pension failures.) If the Fed prints $5 trillion in 2020 and the SPY closes at $300/share on Dec 31st and housing is off less than 10% from peak, I think that's a win in their book. I'll invert a quote from one of my all-time favorite movies, WarGames, in describing how I see the market now: "a strange game, the only winning move is to play". Which is not altogether un-Bogleheadish, if you think about it.

[Ocean77]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

https://en.wikipedia.org/wiki/Expectations_hypothesis

Yes, great. The yield curve shows what people expect today. Much like a stock price of a company shows what people think this company is worth today. Based on all known information available today. Neither predicts the future interest rate or stock price.

[gmaynardkrebs]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

What good is "best prediction" though? Has the yield curve accurately predicted future interest rates in the past?

Perhaps I should have written:

It is impossible to accurately predict future interest rates.

The yield curve is what the markets predict. Markets are fallible, as we all know. But we still invest in the stock market. It's not a question of total accuracy vs not accurate enough to bother with, which is the way you seem to pose the question. The yield curve has actually been pretty accurate since 2008, when so many pundits were predicting runaway inflation and high rates.

[Nate79]

Spoiler alert. Prediction ahead: no one knows nothing about what the future will bring. This thread is a perfect example.

[randomguy]

So interest rates will rise as a result of interest rates being low and Fed buying bonds? Not saying you are wrong but how does that work?

Rates will need to rise to slow down inflation. I see inflation in just about every scenario.

If there is no inflation risk at all we are going to experience a serious multiyear recession that will crash the stock market regardless. I happen to think we will return to a level of normalcy by the late spring / early summer though.

I see deflation in just about every scenario. See the great depression for what happens when you have 20%+ unemployment. You end up with a drastic drop in demand which crushes prices as it works through the system. With so many people looking for jobs, you can hire new talent at lower wages. They are getting paid less so they spend less on houses and other goods. Those companies have less demand and drop their prices and so on.

Granted my crystal ball is right about half the time at best. There is way too many unknowns to figure out how this all plays out and what happens when we go back to "normal". At this point we have no clue what the new normal will be. Lets just look at one segment. Airlines are supposed to lose like 100+ billion. How many of them end up going bankrupt and reforming (great for the customer. Not great for the share holders who get 0 and the bond holders who might end up with quarter on the dollar)? Or do they decide to take on a huge government loan which causes other problems. Your guess is as good as mine. Same thing with the outcome of each path.

And for real fun, think about what happens in 2 years when someone in China get the sniffles again. If your the president, will you treat it like Sars, H1n1, H2n2, and so on or will we go into some type of disruptive action (i.e. all travels in and out get 2 week quarantines?) ASAP. Who the heck knows..

[moneyman11]

“Inflation is coming and rates are going up!” has become a meme at this point.

At some point a prediction has to actually has to come true to be worth listening to, even if it’s made by young new people and brand new bogleheads accounts every year.

[justsomeguy2018]

I don't see how interest rates are going to be trending up any time soon. We have had numerouse QE since 2008 and it didn't lead to high inflation. I'm not an expert on how it all works, but I thought QE doesn't increase the money supply, therefore no high inflation.

I'm more concerned about the cheques. However, I think QE + rate cut was a bit too much and they effectively over juiced the economy.

there was plenty of cheques going out back then... if i recall extended from 26 to 99 weeks of paid unemployement back in 08/09. plus multiple QE, plus interest rate cuts to zero. yet no hyperinflation. annual inflation in low digits. why is that?

You could argue that inflation found its way into asset prices (homes, stocks, business debt, education, etc.). Maybe.

[gmaynardkrebs]

“Inflation is coming and rates are going up!” has become a meme at this point.

At some point a prediction has to actually has to come true to be worth listening to, even if it’s made by young new people and brand new bogleheads accounts every year.

If the Fed wants inflation it will get it; if it wants low rates, it will get it; if it wants inflation and low rates, it will get both of them. It's not one or the other, as many here seem to think. Based on what the Fed has been doing, it looks to me like they want both. Do the math...

[jebmke]

I see deflation in just about every scenario.

That is what Kaplan (Dallas FED) sees as a real possibility. Consumer confidence shocked by the virus and massive unemployment. Corporate assistance creating a big overhang of capacity since businesses that might otherwise go bankrupt and remove capacity from the system survive longer.

[gmaynardkrebs]

I see deflation in just about every scenario.

That is what Kaplan (Dallas FED) sees as a real possibility. Consumer confidence shocked by the virus and massive unemployment. Corporate assistance creating a big overhang of capacity since businesses that might otherwise go bankrupt and remove capacity from the system survive longer.

”Real possibility” only if they don’t act aggressively, is what he means.

[watchnerd]

The Coronavirus will have a large impact on society but the economic impact will not be a dire as many believe.

Prudent policy actions will bring about a managed return to the economic activity. Herd immunity will build and most concerns about the dangers of the virus will subside by the summertime or earlier. Obviously some segments of the population are at much higher risk than others, and the government will do what it can do protect these people.

As economic activity resumes and fears about the virus subside the stock market will rebound, albeit in an irrational way. Investors need to exercise caution. Many companies are not positioned for growth and success in this new economy.

Finally, the unprecedented and coordinated actions taken by the government and Federal Reserve: stimulus package, rate cuts and QE will almost certainly lead to inflation. Interest rates will almost certainly need to rise as a result of this.

We all know that increases in interest rates are correlated with decreases in asset prices. I think we could very well see a multi year bear market.

The TIPS market disagrees with your assessment of unexpected inflation.

[rascott]

It is impossible to predict future interest rates.

Well, not quite. The best prediction of tomorrow's interest rate is the yield curve.

Can you explain? The yield curve is a graphic display of today's interest rates across different bond maturities. How does this predict what the interest rates will be in the future?

When people buy "short" they think rates will rise. When they buy "long" they think rates will go down

I really think you should study what inflation is.... and what causes it.

Basically you need too many $$ chasing too few goods/ services.

In what scenario do you see that as a possibility? You'd need a tight labor market and rapidly rising wages..... higher input costs (oil/ energy/ materials).....


Try this for starters . .

https://www.thebalance.com/causes-of-in ... es-3306094

[Alex Frakt]

Locked: OT economic speculation, policy speculation, unsupported coronoavirus speculation.