The chart above doesn’t look like much, but it is hugely important. It is the chart for a 10 Year Treasury Note and I cannot stress enough just how important it is. There are 3 things here.
1. My timing work shows that what you are looking at is a multi-generational bottom in interest rates. It is unlikely that we see interest rates this low over the next 50-100 years. Stock market and interest rate history teaches us that much.
2. While it doesn’t look like much, this benchmark interest rate moved from 1.43% in July of 2012 to about 2.80% today. That is a 100% increase in interest rates in just 12 months. That is a massive move by any measure and the largest of its kind in nearly 3 decades.
3. The interest rates are just now starting their climb upwards. The trend has shifted and will continue upward for at least a few more decades. It will not be a straight line move and it will not be fast, but do anticipate a gradual increase from this point on. My timing work shows that these rates should accelerate to the upside after 2016 due to upcoming inflation.
What does it all mean? In simple terms, this will have a huge negative impact on the overall US and Global economy, it will destroy the US housing bubble once and for all, it will suck down emerging markets (which is already happening).
Why? Because the all of the above mentioned markets rely purely on extremely cheap finance and high liquidity. Once you take that away, the markets and the overall economy will start going down fast.
What should you do? This is what I would do as of today.
- Start liquidating your stock market portfolio. You can start buying back at much cheaper prices at 2016 bottom.
- Lock in any loans you have (mortgage, business, personal) at current rates.
- Sell all of your real estate holdings if it makes financial sense and satisfies all of your lifestyle choices. Real estate will get completely crushed over the next 10 years.
- Accumulate cash and keep it safe in short term treasury(1-6 month maturity). Keep rolling it over as interest rates increase. When the next bottom in the stock market shows up (in 2016)….Go All In.
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