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2015 Prediction: LOWER Interest Rates AheadBy
Tuesday, December 2, 2014
"It seems to me almost unthinkable that U.S. interest rates could rise in any meaningful way," Jeff Gundlach said on CNBC last week.
Jeff Gundlach is "The New Bond King" according to Forbes.
To be crowned King of the bond world, you must know interest rates better than anyone else on the planet. Gundlach has earned his place.
By saying interest rates won't go up, Gundlach is going against, well, everyone...
"Entering 2014, everybody was negative... 68 out of 68 economists said [interest] rates would rise." Gundlach told CNBC. "And yet, there were all kinds of reasons to like Treasuries."
What reasons are there to like U.S. government bonds? And how could Gundlach possibly expect interest rates on U.S. government bonds to go lower?
It's simple... It's all about relative value...
Gundlach pointed out that interest rates on government bonds in Italy and Spain are around 2%, and interest rates in France are around 1%.
Which would you rather accept:
Gundlach would take the U.S. government bonds – he sees U.S. government bonds as a better relative value. It's not just government bonds... Gundlach says that, compared to U.S. corporate bonds and U.S. municipal bonds, U.S. government bonds are still "cheap."
What's Gundlach's outlook for the next two years? He explained it on CNBC:
When you get what he is saying, it is a big prediction... If the Federal Reserve raised interest rates from basically zero up to 1.50%, and if the interest rate on U.S. government bonds fell from 2.20% to 1.50%, then the yield curve would be totally "flat."
If the yield curve "flattened out" at 1.50%, then that really would be "unthinkable."
In short, Gundlach is predicting that the Fed will raise interest rates... but that long-term interest rates will basically NOT go up much at all... they could even go DOWN.
You may disagree... But don't dismiss the possibility of lower rates... If you are betting on higher long-term interest rates, please realize that you are betting against the New Bond King... I wouldn't want to bet against him about bonds in 2015...
Good investing,
Steve
Further Reading:
Get more of Steve's latest predictions and timeless advice right here:
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"If you catch just one biotech bull market in your lifetime, you may never have to work again..." My Best "How to Get Rich" Advice
"What advice do you give a 22-year-old just starting out? It's the same advice I'd give just about anyone who wants to grow his wealth..." Market NotesWHAT COPPER IS SAYING ABOUT CHINA How strong is the Chinese economy? Copper is saying "not very strong."
Regular readers know we monitor copper to get a read on the global economy. The metal is a vital ingredient in everything around you... like home wiring, plumbing, cars, electronics, and refrigerators. This "in everything" quality makes copper rise and fall with economic activity.
Since China is the world's largest consumer of copper, its economic health plays a key role in copper prices. In the past six months, we've heard that Chinese economic growth is slowing. But what does copper say about all this?
In 2009, copper began a rally that took it to a 2011 high of $4.50 per pound. Since then, the metal has traded in the $3-$4 per pound area. But just last week, copper broke out of this trading range by plunging to less than $3. It's a sign that all is not well with China's economy.
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