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Can You Stand Low Interest Rates for the Next 20 Years?

By Dr. Steve Sjuggerud
Friday, October 11, 2013

I couldn't believe it...
It was huge news last week for the financial markets... but nobody reported it.
I guess nobody wanted to believe it... Maybe it was so extreme that nobody could even process that it was possible.
So what was this huge news?
Well, the Bond King spoke. And he said something that sounded outlandish at first...
The Bond King said that long-term interest rates should stay "abnormally low" – close to 1% – for a very long time… possibly out to 2035.
I couldn't believe this wasn't all over the news.
You see, when it comes to interest rates, it doesn't get any bigger or better than the Bond King.
The Bond King is Bill Gross... Bill has likely made more money from interest rate bets than anyone, ever. As founder and Chief Investment Officer of PIMCO, he's currently responsible for $2 trillion. Most of that money is in bonds.
Bill's position as the Bond King comes from his ability to correctly anticipate movements in interest rates... before everyone else. He's successfully done that for decades.
Looking ahead, in his latest Investment Outlook letter, Bill explains his theory of why interest rates could stay low until 2035. He says the U.S. is attempting what he describes as a "beautiful deleveraging."
In short, Bill explains, the U.S. Federal Reserve is trying to help wean America off debt slowly – without a crisis. The thing is, a successful "beautiful deleveraging" will take time... A lot of time...
He explains:
If the Fed's objective is to grow normally again, then there is likely no more beautiful or deleveraging solution than one that is accomplished via abnormally low interest rates for a long, long time.
How long is a long time? Bill explains, with a historical example:
The last time the U.S. economy was this highly levered (early 1940s) it took over 25 years of 10-year Treasury rates averaging 3% less than nominal GDP to accomplish a "beautiful deleveraging." That would place the 10-year Treasury at close to 1% and the policy rate at 25 basis points until sometime around 2035!
If Bill is right, this is terrible news for retirees...
He says, "The beautiful deleveraging of course takes place at the expense of private market savers via financially repressed interest rates."
The Bond King says interest rates could stay low until 2035...
Are you prepared for that? Can you survive on 1% or less interest for decades?
It might not happen, of course. But what if it does?
The best man on the planet at predicting interest rates says it could happen... so you shouldn't dismiss the idea.
If your retirement plan is to sit and wait and hope to earn higher interest someday, you have no retirement plan. Because that day might not come...
What can you do?
To me, stocks and housing are the way to go...
I expect in the coming years, as this realization sets in, more and more money will flow into stocks and into housing.
I expect "bubbles" will return in the stock market and in the housing market... as people realize they NEED to do SOMETHING with their money.
The Bond King says we could have 1% interest rates out to the year 2035. If your retirement portfolio can't handle that possibility, you need to make some changes now... before it's too late...
Good investing,

Further Reading:

Stocks might be near all-time highs... But there's still plenty of upside left. "When it comes to investing," Steve writes, "value is relative. And right now, when you size up financial assets, stocks win by a mile." Read more here: Why Stocks Could Go 50% Higher From Here.
And housing still has plenty of room left to run, too. "By my calculations," Steve says, "fair value for the typical American house is somewhere between $25,000 and $75,000 higher than today's prices." See the chart – and learn why Steve is buying real estate with his own money – right here.

Market Notes


Lots of upside and little downside? We're buyers. But lots of downside and almost no upside? We'll pass...
We monitor a list of more than 80 exchanged-traded funds (ETFs). This list lets us monitor every major stock sector, currency, and commodity. And the popular U.S. Natural Gas Fund (UNG) is our lead candidate for "the world's worst ETF."
Over the years, we've heaped a lot of abuse on this fund. It's supposed to track the price performance of natural gas, but its flawed structure makes it "bleed" value from shareholder accounts.
You can see this dynamic at work below. Our chart plots the performance of natural gas (blue line) and UNG (black line) over the past two years. Since late 2011, natural gas has registered a modest gain. But UNG is down more than 40%. It's amazing this thing is still for sale!

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