Interest Rates With Peter Tchir – March 26, 2017
Guest: Peter Tchir
The stock market is already climbing right after the election and is setting new record high several times over. As for bonds Peter just mentioned the 10-year treasury value dropped and long-term interest rates spiked right after the election. Since then if anything there has been more upward pressure on bond prices, more downward pressure on interest rates. The rates are basically levelled off right around 2 1/2% or so on the 10-year government bond even as the stock market has kept climbing. As I discussed on our recent show this could be a sign that investors may not be as optimistic about Trump’s economic revolution as they appear on the surface. Their optimism is driving up stock values yes but the same time they are not fleeing bonds to buy stocks. In other words, it’s not a flight from quality. They could just be edging their backs. In other words, just in case the Trump Bump gives way to the next big slump. Think of it as having one foot on the accelerator and one foot on the break when you are in traffic. Not quite sure in the traffic ahead is going to let you floor it or force you to put it in park. The bottom line is that investors have had a lot of money sitting on the sidelines for years now. Which is now flooding into all markets. The stock markets and yes the bond market proving up prices, proving down yields. True or False. When interest rates get too low they must go up again. False. Economic rules are influenced by changes in societies and governments and those things are always changing. Ours is certainly changing demographically has baby boomers age. In fact, a lot of economic impact comes with that change of aging baby boomers. It’s just one reason that some analyst and some economist believe that low-interest rates may just be our new normal. I often use Japan has an example. Face it they have been in a low-interest rate environment now for about 25 years and that’s important to keep in mind whenever you hear someone saying that we are in a bond bubble and the bond bubble is about to burst because interest rates inevitably have to go up.
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