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I think many just don't understand the psychology of the investment world. Rates are going up because people are moving out of Treasuries and adding risk. They aren't preparing for financial collapse or hyper inflation, they are just trying to make more money and feel comfortable doing it.
The Fed might be a little disappointed with the rates going up, but I think their biggest fear was the lack of inflation and what deflation would do if it took hold. TIPS are showing inflationary expectations are much better and that has to make the Fed happy. Also remember the Fed is a proxy for the banks and the sharp yield curve that is developing is good for the banks in rebuilding their capital cushion. The first uptick in the yield curve took them away from the brink, the prolonged yield curve gets them competitive and willing to loan again.
Add in the Fed has created a managed devaluing of the currency which has yielded exports being at higher levels than before the financial panic began. The rest of the world is recovering faster than the US creating a more balanced trade picture.
So in sum people can try to see the bugaboo around the corner, whether it be spiking inflation or government debt issues, but it makes more sense to see what exactly is happening right now. Overall things are going quite good with the last real leg to deal with being unemployment. That is something, despite the mandate for the Fed to act on it, I don't really think anything they can directly influence. That will come when productivity moderates and consumer confidence solidifies recent gains to the point where businesses believe in it. Plus its something tax policy affects and the tax deal just signed will help somewhat.
i agree, the rate increase is more about assets flowing back to where money is being made or has the pereception that it will be made which is now equities and maybe even real estate in the areas that leveled off.
now the risk is if you stay in bonds your returns may be paultry compared to other asset classes . this is why eventually every asset class has its day in the sun.
the good news is america is still the best place in the world central banks love to invest and american debt is still primo. central banks have switched from conventional bonds to tips for their reserves so that has put pressure on the dollar since tips arent considered dollars . that has driven up bond prices and lowered the dollar as well.
I think Bill Fleckenstein's latest column contains a far better perspective on this than the above couple of posts have made, especially the part I italicized for emphasis below:
A variation of that same theme seems to be what has stopped the bond-market rout from being regarded as bad news.
Apparently, a school of thought has "evolved" that the decline in the bond market is not about the Fed losing control of the printing press, as I have maintained, but about economic activity surging. Thus, the weakness in bonds is (supposedly) good news.
How anyone can conclude that, given the data, I don't know. But even if you agree, you can't escape the reality of higher rates.
So if you really think that bond weakness is linked to the economy catching fire, and you extend that argument out, then you should be expecting even higher rates and more inflation, though the latter is certainly not on the radar of any such Pollyannas.
I listened to Peter Schiff back in '06 and started buying gold & silver. I'm pretty much set at this point. I've made 300% profit in 4 years.
Schiff was right about gold, he called the housing crash. Look at what he is saying about the future of treasuries & our economy. Dismiss him as a doomsayer if you want, but he's been spot on recently.
To survive long-term, we need to PRODUCE capital as a nation. We are a service economy. Go to work to shuffle money around & take your cut, then spend it on Comcast, cell phone service, back rubs, eating out, sports games, and recreation... It's impossible for us to sustain this.
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