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posted on 13 February 2018

The Rate "Bang" Point

Written by , Clarity Financial

The mystery has been solved.

We now know the point where interest rates implode the market: 2.9%

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With interest rates now 4-standard deviations above the 1-year moving average there are several things which likely happen in relatively short order:

  1. The Fed will quickly back off from hiking rates
  2. The Fed will likely slow or curtail their balance sheet reduction program.
  3. Economic growth will slow.
  4. Earnings will come under pressure
  5. Treasuries are likely to become a “safe haven" of choice is the current “market correction" continues in the weeks ahead.

This will be particularly the case as the recent spate of economic growth from 3-hurricanes, 2-massive wildfires, a surge in oil prices and an extremely cold winter which boosted economic activity temporarily begins to fade. In fact, over the next three-quarters we are likely going to see lower inflationary numbers, weaker economic growth and weaker than expected earnings.

If I am right, you are looking at substantially lower interest rates and higher Treasury bond prices.

As I stated last week, the next bull market will most likely be in bonds, not stocks.

We remain long-biased to bonds.

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