Ultra-Low Rates Could Last Another Decade

Since we have already seen nearly six years of ultra-low rates, how much longer can they last? 

Given the magnitude of the crisis, record levels of unemployment and debt, the best way to answer that question is by observing what the Fed did during a similar time period—the Great Depression. 

How long did rates stay low then? Nearly 15 years. 

As the Fed has made clear, given current economic conditions, they don’t expect to raise rates for a "considerable time". If you think our current experience is close to the Great Depression and it will take just as long to recover, then we may actually be looking at ultra-low rates for many years to come—or decades as bond king Bill Gross has stated. 

Question is, what will this do to the stock market and other assets as yield-starved investors continue to chase returns?

DYI Comments:  A portion of those 15 years were WWII the politicians and central bank required low rate to finance the war effort.  More likely rates may begin their upward movement is in the early 2020's as Boomers move into retirement but will continue to consume (at a lesser rate) causing a labor shortage. Add on the costs of Social Security and Medicare taxes will be raised, more borrowings, and what is left over the Federal Reserve will monetize.

For us older folks the bond rally of a lifetime is coming to a close as rates peaked in September of 1981 [10yr Treasury Bond at 15.32%].  Was July of 2012 [10yr Treasury Bond 1.53%] the bottom for interest rates?   Who knows?  What I do know is that rates are at sub atomic levels to expect a bull market in bonds to be launched from here is absurd.  This is why our model portfolio for long term bonds is at 20%.  A very real possibility is a new recession within our on going economic downturn maybe manifesting itself.

U.S. stocks gain as market looks past GDP data; Dow gains 0.29%

Investing.com - U.S. stocks rose on Wednesday after investors took a dismal first-quarter GDP report in stride, betting that the second quarter will reveal a solid uptick in economic activity. 

The Commerce Department reported earlier that U.S. gross domestic product contracted at an annual rate of 2.9% in the first quarter of the year, far surpassing consensus forecasts for a decline of 1.7%.

DYI Continues:  We all need to hope that the majority of this GDP decline is weather related.  More than likely this is the beginning of another recession and if that is correct then lower rates will prevail.  Europe is on the verge [some are there now] of out right deflation this weakness will be exported world wide along with the U.S. pushing rates far lower than anyone of us would suspect (including me).  A multi-year deflation would push bonds up to the sky along with our sentiment indicator to Max-Optimism.  As a side note this also bottoms out short term bonds [Max-Pessimism].

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency--Short Term Bonds
Max-Pessimism *Market Bottoms*MMF
Depression
Hope
Relief *Market returns to Mean* 

Smart Money buys the Dips!
Optimism
Media Attention--Gold
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional---Long Term Bonds....You are Here!
Max-Optimism *Market Tops*--REITs
Denial of Problem--U.S. Stocks
Anxiety
Fear
Desperation

Smart Money Buys Aggressively!

Capitulation

DYI Continues:  The future rate rate of return for Long term bonds, REITs, U.S. stocks is dismal.  The value player is in the waiting game for improved future returns.  Gold mining companies are pricey but have room to run.

Janet Yellen, The Fed and a System of Lies

Now let’s look at the bull markets almost everyone has been ignoring since 2001: gold and silver. No doubt about it; the old monetary metals have been in the dog house for the past few years. However, we should note that their current lows are far above the lows of their most recent correction in 2008; in addition, over the past year the bears have failed to drive precious metals prices decisively below the lows of last summer. Both gold and silver have seen some excitement this week. By Christmas I expect the market will stop worrying about gold and silver trending toward their lows of 2008, and will begin wondering when the highs of 2011 will be taken out. In a world where lying to the public has become Washington’s “policy” of choice, the old monetary metals are looking pretty good right now.

DYI

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