- Posted by JC Parets on July 24th, 2014 at 6:22 am
It seems like every day I hear or read about someone’s opinion on interest rates. The funniest answers typically revolve around the fact that, “interest rates will eventually go up”. Yea? Thanks, that really helps. You mean the Federal Funds Target Rate won’t stay at zero forever? Brilliant analysis.
So now that we know rates will “eventually” go up, we can move on. Because that obviously doesn’t help anybody. What does help is trying to figure out what rates will do in the meantime before they start to rise. Coming into the year, consensus sentiment towards rates was that they were going much higher this year. In fact, the sentiment was at such an extreme that we hit levels not seen since early 2011, just before the 10-year fell from 3.7% down to 1.4%. This led to a 50% rally in shares of $TLT that year, the US Treasury bond ETF. We’ve seen a similar sentiment unwind so far in 2014 as bonds are the top performing asset class and interest rates do nothing but go down.
Here is an awesome chart showing long-term rates in the United States going back all the way to 1790. The point here is that although we “know” interest rates will eventually go up, the process can take a lot longer than some expect. Look at other times throughout history where rates bottomed out. This can take 10-15 years easily and still be a very normal and traditional bottoming process:
We could be having this same time-wasting conversation about interest rates “eventually” rising years from now. We have no way of knowing. So we’ll continue to analyze price behavior and sentiment levels to allocate assets towards fixed income, and treasury bonds specifically. Worrying about what the Fed is going to do or not do, worrying about how to take advantage of a “rising rate environment” and wondering how rates can keep falling in the face of whatever inflation we may or may not have seems like a complete waste of time from a money allocation perceptive.
I believe the best thing to do here is simply to stick with the trend and not over think it. Rates are getting slammed, money is flowing into treasury bonds hard and we don’t see any evidence yet that this trend is reversing. This chart up above tells us to be patient, give it time, and let it play out on its own. If we’ve learned anything over the years it’s that when interest rates do turn, they will likely trend higher for a long time. So we’ll have plenty of opportunities to worry about a rising-rate environment whenever it does come. For now we’re just not in one. Appreciate it.
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Are Coal Stocks Poised for an Epic Breakout?
Posted by JC Parets on July 23rd, 2014 at 10:00 am
Whenever I bring up coal stocks to my smart friends, they laugh at me and tell me to order another drink. I kid you not. […]
Small Caps Act Poorly On a Relative Basis
Posted by JC Parets on July 22nd, 2014 at 6:33 am
One of the more interesting developments since March began has been the severe underperformance out of the small-cap stocks. Coming into the week, the Russell2000 […]
Bond Market Keeps Diverging With Stocks
Posted by JC Parets on July 17th, 2014 at 11:18 am
We do a lot of intermarket analysis on a day to day basis either for confirmation or to look for divergences. One of my favorite […]
The Worst Possible Time to Own Gasoline
Posted by JC Parets on July 16th, 2014 at 6:11 am
There’s a common misconception out there that I feel somewhat obligated to clear up. You see, we pride ourselves here in analyzing the facts: price […]
Momentum Monday with Howard Lindzon
Posted by JC Parets on July 14th, 2014 at 10:20 pm
I had a nice little chat today with Howard about the markets. After I leave he stays on with Jenn Van Grove to talk about […]
FOX Business: Brazil Over Germany This Summer
Posted by JC Parets on July 12th, 2014 at 1:06 pm
I dropped by Fox Business on Friday to chat with Cheryl Casone about how to best approach the dog days of summer. Earlier last week […]
What Do You Think About Bonds?
Posted by JC Parets on July 11th, 2014 at 11:27 am
One of my favorite ways to question my own opinions is to flip through my chart book without looking at the labels or ticker symbols. […]
Buying Brazil and Selling Germany
Posted by JC Parets on July 10th, 2014 at 1:02 pm
One of the strategies that we like to implement to help achieve a low correlated portfolio is selling one stock and buying an equivalent amount […]
Mystery Chart: What Do We Do Here?
Posted by JC Parets on July 9th, 2014 at 2:57 pm
Alright here it is. I know you guys love your mystery charts. Remember this can be a stock, bond, commodity, currency, ratio, etc. Again, the […]
J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
- Rates Can Take A Long Time To Bottom
- Are Coal Stocks Poised for an Epic Breakout?
- Small Caps Act Poorly On a Relative Basis
- Bond Market Keeps Diverging With Stocks
- The Worst Possible Time to Own Gasoline
- Momentum Monday with Howard Lindzon
- FOX Business: Brazil Over Germany This Summer
- What Do You Think About Bonds?
- Buying Brazil and Selling Germany
- Mystery Chart: What Do We Do Here?
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