Pearlman CTA confidential interest rate outlook, for up to date benefit open Pearlman CTA account.
Current rates may reflect a short term flight to safety and jumping on a trend.
Pearlman CTA managed futures.
Why short treasuries may be best risk/reward trade coming decade:
Concern for $ may prevent fed from holding cuts already reflected in prices.
A free investor would not accept less interest then anticipated currency depreciation % + currency adjusted inflation + opportunity cost of tying up.
A weaker economy should exasperate the budget deficit.
Inflation: core rate could contnue up despite temp drop in energy and food., expect global resource competition to reassert long term trend up.
Even if RE or Equities drop 50% still will be 5x what they were in 1980.
Relative value to: -yields on foreign Treasury markets with currencies that are actually appreciating.
-stocks and real estate being a better value then before correction.
- preferred stock/bond deals where wealth funds get 10%+- return.
Impact a recession will have on US budget and creditworthiness
Rate cuts already priced in
With the Libor showing banking system expected to endure, the recent flight to safety can unwind.
Delayed reaction to fed cuts already made and benefit of anticipateOnce economy starts improving fed will raise rates quickly as blamed for current crisis for leaving to low last cycle.
Once interest rates start to rise impact on value even 2 year duration can be significant.
High oil prices reflect strong global economy anyd cuts may already be getting bid back to RE market with 30yr fixed under 6%
Refinancing at good rates will allow more home owners to keep homes off market.
Drop in oil prices should help stimulate economy.
Fiscal stimulus plans being floated, throwing $ at problem rather then belt tightening is path being pursued.
Fed dual mandate at times self conflicting puts US$ at long term disadvantage to central banks with clear currency stability mandate.
Pearlman CTA Managed Futures.
Pearlman CTA managed futures program can position you for higher interest rates.
The revisit in ten year treasury notes to below 3.00% after commodity prices have already headed higher may present a historic opportunity.
A slower economy tends to weaken the dollar raising import and commodity prices.
If the economy does not respond to Fed rate cuts the dollar could tumble.
A declining US$ is the easy path to service debt service from higher rates and deficits.
Regardless of short term rates, long rates could go much higher as Fed inflation control credibility is lost.
A weaker economy should cause the budget deficit to balloon as government receipts will fall relative to expenditures.
The deficit is a growing burden.
A deteriorating financial condition typically requires paying higher interest rates.
If the economy growing leads to increased wages productivity should continue slowing.
Rising demand, increased pricing power and price increases should lead to higher interest rates.
The yield curve that had been flat may go even steeper then normal.
Past forecasts of an extended inflation free period were based on faulty comparisons to Japan.
Japan has a high savings rate, has a trade surplus, and has been flooding its system with liquidity.
We will soon try again to drain liquidity from our system.
Much of the liquidity was recycled into the purchase of treasuries.
The carry trade of banks borrowing at the fed rate and buying treasuries no longer works as they yield less.
A flight to quality should unwind if the economy improves.
Even after the recent drop housing and equity values are still 5-10 times above when Paul Volker raised rates to control inflation.
If the Fed raises rates in an attempt to restore credibility it could actually contribute to inflation by increasing interest income, interest costs including government debt service.
The next round of rate increases could result in a viscous cycle.
With so much indexed formally or not to the cost of living our situation is a lot more like Brazil then Japan.
Add the potential huge interest liability from treasury inflation protected securities 'TIPS' to the social security, pension, savings and mortgage guarantee time bombs.
How easily hyperinflation can infect this type of economy.
The stagflation we experienced due to the Carter administration could be repeated or worse by the next President.
The demographics of substantial pension demand for high grade long term treasury debt was no surprise.
Nor should the liquidation of said assets with the aging of the baby boomers be a surprise.
Surging corporate and government issuance could soon create more supply then demand.
Pensions have needed more bonds to reach fixed income needs as rates fall but will need fewer bonds as rates rise.
When long term rates start to go up they could go up very fast as hedge funds and banks scramble to hedge their risk exposure.
The worst place to have money is a long term bond that yields under inflation and nominated in a declining currency.
Don't be surprised if current or even lower rates do not last long.
The shift from defined benefit to defined contribution plans will also diminish demand to lock into fixed long term income streams matching long term liabilities.
Fixed income looses value from a weaker currency and inflation.
Rising long term interest rates by definition reduce bond valuations.
Rising short rates helped strengthen the dollar.
This hurt domestic manufacturing which along with dropping productivity lead to declining profits and equity valuations.
When the fed stopped raising short rates the dollar should resume its decline and flows to long term treasuries should slow.
The harder the fed cuts rates the higher long rates should go.
China is under pressure to stop artificially undervaluing their currency.
A way Japan and China had manipulated the exchange rate is by buying US treasuries.
Once they decide on a fair market currency the drop in treasury demand can cause a sharp spike in rates.
Stronger foreign currencies have slowed other nations growth.
Slow foreign growth will make it harder for us to meet budgeted growth targets at home.
This will magnify the budget deficit and increase the chance of stagflation.
High energy prices sucks money from the consumer, a decline could actually stimulate core inflation leading to a sharp increase in long term rates.
With a senate/congress unable or unwilling to make responsible long term decisions stagflation should eventually set in.
Not preparing for the dangers of a potential rise in interest rates is gambling.
No one knows when rates will bottom, it could be they just are now.
The longer the delay after rates start rising means needing more capital to safely withstand market corrections due to a higher cost basis.
Those who are properly positioned may benefit for a long time to come.
Pearlman CTA managed futures.
Investing in futures entails risk of loss and is not suitable for everyone.
Past performance may not repeat
See current pearlman cta ddoc before investing.