Economics

The End of an Era

I highlighted in a post the other day the importance of getting a handle on the direction of interest rates and how quickly they might move in that direction. Looking at a long-term historical chart of 10-year UST, it would appear we are likely at or near the trough of this long-term interest rate cycle, all else equal. The longer-term trend Is likely upward from here.

How quickly rates actually move in that direction is anybody’s best guess. There appears to be a general consensus that interest rates will stay below historical average levels for an extended period of time due to demographics and their impact on growth and growth expectations. Interest rate movements appear to support this view (history supports a lengthy trough as last cycle’s trough extended for roughly 20 years). Admittedly, I have held this view for a number of years now but the contrarian in me is beginning to question that view.

For now (and per usual), it’s probably most important to focus on where the consensus view could be wrong as that has the potential to have a tremendous impact on all asset classes and the economy as a whole in this particular case. I will have more on this topic in my next post.

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