11/22/2023
Higher Rates Are Here to Stay
Governments are expected to paya newt $2 trillion paying debt interest above 2022.
Wall Street Journal today 11/22/2023
Abd it is going to get far worse than anyone imagines. That is anyone who was not around in 1981. Let’s review as this is part of a larget story.
Interest rates and corresponding bond prices move in a 39 year cycle.
Interest rates bottomed in 1942 as the US entered WW II They peaked amid wild inflation in 1981. Then mortgage rates were 14% and Treasury Bills paid more tha that. Fed Chair Paul Volcker raised rates to the ‘uncle point’ and that was it. Rates declined rapidly to around 7% by 1987. The 39 -ear cycle ended March 2020 with short rates near zero. The rapid reversal brought three-month Treasury Bills to 5% this year. That caught bankers who were not around in 1981 flat footed. And poof Silicon Valley and Signature banks folded with so many low interest rate bonds now worth less than purchase price. With Mortgage rates already over 7%, existing home sales are now at a 13 year low.
With CDs at double digit returns who needed the stock market in 1981? And given the technology of that day buying and selling was uber expensive. One hundred shares of anything over $25 a share could run to hundreds of dollars. As rates came down, stock prices rose. The DJIA traded around 800 in the summer of 1982. By 1987 it had tripled to 2,500.
Over time rates and the cost of trading shares both plummeted. Discount firms shed the requirement of a human broker altogether. You could be your own broker and quotes became free on-line rather than watching at the brokerage house. Finally, rates have bottomed and reversed. Have stocks done the same?
Not yet. Only 15% f the S & P stocks were trading over respective 50 day moving averages October 27, Now the number has raced to 50% in just four weeks. This is called short term over-bought. I would expect a slow down and then the traditional Santa Claus Rally.
Interest rates should fall from current 4.4% on the Ten Year to below 4%. Crude oil is range bound between $70 and $85.
Social Mood is deteriorating even faster than I expected. Protestors taunted Johnson with Hey LBJ, how many kids did you kill today? Now protestors have labeled the current President at Genocide Joe. Mr. Biden is trying to ‘support’ Israel while offering Palestinian aid. That angers both sides. Biden’s approval rate has fallen to its lowest ever at 40 %, The Democrat party looks to be headed to a repeat of its disastrous 1968 convention once again in Chicago.
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