Under the Hood: 5000 Years of Interest Rates (Part II)

We’ve heard a lot about the historically low interest rates. But what does this mean? First, by historic, we mean in recorded history, so we’re already, in a sense, footnotes in a future economics textbook. Second, we really don’t want to be footnotes in a future financial markets textbook, as casualties of the greatest interest rate risk in history. But it appears that the potential impact from rising rates is underappreciated. The search for yield in all the ordinary places – long-term bond funds, REIT and utility funds, the ‘dividend aristocrats’ – is not diversification and it’s not safe. They’re at historic high valuations and it all hinges on interest rates. One must escape them, which means to step outside the indexation/ETF vortex.

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Under the Hood: 5000 Years of Interest Rates (Part I)

Keep hearing the phrase “historically low interest rates”? What do you think that means, exactly? Since World War II? Since the Great Depression? World War I? The Civil War? The War of 1812? What it means is “in the recorded history of mankind.” Meaning in the last 5,000 years. Near-zero and negative long-term interest rates, which are now a near-worldwide phenomenon, have never happened before. That should arouse at least a moment’s reflection, should it not?

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June 2015 Commentary – Equity as a Bond Substitute

As prevailing interest rates remain low, investors continue to seek out ways to generate income from their portfolio. In this commentary, we discuss high dividend paying stocks, using a popular exchange-traded fund as an example, and wonder whether such stocks are likely to generate results in line with investor expectations.

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June 2012 Commentary – What Might Happen if Interest Rates Do Not Rise?

What might happen if, contrary to common expectations, interest rates do not rise? Has that situation ever occurred before? We consider the historical context for the current interest rate environment, as well as the implications for investors should the current low yield levels be sustained over an extended time horizon.

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May 2012 Commentary – Bond Market Panic

Given the elevated level of the bond market, “the bond market panic” may sound like a preposterous term. However, given the manifest absence of yield available in the bond market, we believe it is appropriate. As higher-coupon bonds are due to mature and newer bonds are issued at lower coupons, we estimate the potential loss of income to fixed income investors may be substantial.

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