The Rising Interest Rate Environment

The following chart shows the inverse of the 5 year moving average of the 3-month treasury bill yield.<br /><br /><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFchlsiqdoD32e2-QioQKzyzQa5sNjsbatqecuktYZFTj0L0g79Ro-3fgpEVg7Q59I9OqM8fhUwAso6M-f4-Destv-vMmKNMKRr0Fziene9lGfkqBiew04Rajs-MRkaO6mAVfvSUyrvj0/s1600/3-Month+Treasury+Bill+Yield+Inverse.jpg" imageanchor="1"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFchlsiqdoD32e2-QioQKzyzQa5sNjsbatqecuktYZFTj0L0g79Ro-3fgpEVg7Q59I9OqM8fhUwAso6M-f4-Destv-vMmKNMKRr0Fziene9lGfkqBiew04Rajs-MRkaO6mAVfvSUyrvj0/s320/3-Month+Treasury+Bill+Yield+Inverse.jpg" /></a><br /><span style="font-size: x-small;">Click to enlarge.</span><br /><br />Note that since the Great Recession about the only thing that seems to rise is the yield's inverse. Go figure.<br /><br />If history is a guide, we just need five things to make short-term interest rates actually rise.<br /><br />1. <a href="http://en.wikipedia.org/wiki/Attack_on_Pearl_Harbor">Pearl Harbor.</a><br />2. Patience.<br />3. Real economic growth.<br />4. A hawkish Fed.<br />5. Sarcasm.<br /><br />In all seriousness, <a href="http://research.stlouisfed.org/fred2/graph/?g=ovb">the 3-month treasury yield didn't hit 1% until 1948</a>. That was nearly two decades after the <a href="http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929">stock market crash of 1929</a>. In hindsight, savers couldn't even count on World War II to get yields higher. So why is there so much hope now?<br /><br />I'm clearly not an optimist. Other than <a href="http://news-these-days.blogspot.com/2013/08/the-long-term-death-of-real-yields.html">the long-term death of real yields</a>, there's very little I count on. It's been a central theme of mine since turning permabearish in 2004. I'm not saying that the "death" is guaranteed to continue, but I would be among the last to bet that savers will soon be handsomely rewarded on their <a href="http://research.stlouisfed.org/fred2/series/SAVINGS">$7 trillion in savings deposits</a>. That's six times what it was in 1995.<br /><br />In fact, I'd probably be fighting <a href="http://research.stlouisfed.org/fred2/graph/?g=ovd">the Japanese</a> over that last bet opportunity!<br /><br /><a href="http://news-these-days.blogspot.com/2011/02/more-dangerous-advice-from-jeremy.html">Long-term TIPS bonds are/were the bubble?</a> Seriously? At least <a href="http://research.stlouisfed.org/fred2/series/DFII30">long-term TIPS bonds</a> are still paying a positive real yield, unlike the <a href="http://research.stlouisfed.org/fred2/series/BNK5YRW156N">0.51% nominal yield on the typical 5-year CD</a>. And with $7 trillion in savings deposits, is that low rate really all that shocking? Banks should just put out a sign.<br /><br /><div style="color: red;"><b>Why the @#$% do you think we want you to deposit even more of your @#$%ing money? We're in the @#$%ing lending business for @#$%'s sake!</b></div><br />This is not investment advice.<br /><br /><b>Source Data:</b><br /><a href="http://research.stlouisfed.org/fred2/graph/?id=TB3MS">St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate</a>

The Rising Interest Rate Environment

The following chart shows the inverse of the 5 year moving average of the 3-month treasury bill yield. Click to enlarge. Note that since the...

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