Busts: Not Just Money, But Life Changes
The majority view of the US stock market is that "it always comes back higher". Yet a student of financial history understands this view has been fueled by a trend of lower interest rates since 1981.
Since 1971, no major economic nation in the world has issued their currency backed by gold. In 1981, US Treasury yields reached their highest ever, kicking off the start of the largest bond boom in history. As yields came down, the continued decline in interest rates set off the largest borrowing binge ever seen.
In the summer of 2016, not only did long term US Treasuries produce their lowest yields (highest prices) in American history, they also brought about the lowest yields on government bonds from Japan to Germany to Britain and across the world.
Should we dismiss these first in history events when making financial decisions?
When rates rise after producing their lowest in world history, this is no mere academic discussion. It could change ALL of our lives.
Short seller Jim Chanos made this comment in an interview this month.
"If we’re in one of those periods now, if 2016 is like 1932 or 1979 — then you not only have to change your portfolio, you have to change your lifestyle. That’s one of the things we’ve been telling clients. If this is a major shift to populism, nationalism, greater state involvement, and less globalism, then you really have to rethink almost everything in your life."
As Dow 20,000 has been halted many times since the Federal Reserve hiked interest rates for the second time on December 16th, and global bond markets produced their largest monthly losses on record in November, is it possible that our discussions about money should be going much deeper?
The historical events leading up to 2017 have warned everyone to expect huge changes. Record stock prices and record borrowing levels are a dangerous combination.
Join those skeptical of the "infinite debt to infinite prosperity" model who are seeking outside the box ideas and solutions.
Click here to start reading The Investor's Mind market commentary while we are still hanging around Dow 20,000.