Another amazing event that could have a monumental effect on our markets, economies and portfolios was a barely noticed warning coming from one of the main regulatory bodies in the United States, FINRA. The warning was about the risks and dangers of longer-term fixed income. We certainly agree with them, but it is extraordinary to see the power of the government behind that viewpoint....
“As we discussed last week, fixed income prices and
interest rates act in opposite directions. Just like a seesaw, one goes up and
the other one goes down. The FINRA announcement could very well be a critical
“tell” as to the direction of interest rates. If they are issuing a warning, it
could very well mean that the zero-interest rate policy (ZIRP) is finally coming
to an end.
It makes sense. We have been arguing that ZIRP was
devastating savers and retirement funds. Retirees and participants in 401K-type
plans have been depleting their accumulated balances prematurely. Pension and
endowment funds have been earning returns that will cause huge shortfalls or
require huge contributions from their sponsors if continued for much longer.
For example, the two major California public retirement funds, CALPERS and
CALSTRS, recently announced horrendous actuarial shortfalls..."
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