by Greg Valliere , AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
September 11, 2019
GET OUTSIDE OF THE WASHINGTON BELTWAY and talk with real voters, and you get an earful on several topics, including a consistent refrain that interest rates are too low. Most Americans are conservative investors who prefer to save — but the saver class is increasingly frustrated by low yields.
AS EVERYONE IN THE FINANCIAL SERVICES INDUSTRY KNOWS, the quest for higher yields is pervasive, so we think the idea of negative interest rates is politically toxic. Yet Donald Trump bashed “boneheads” at the Federal Reserve yesterday, calling on them to move quickly to zero percent — or negative — rates.
THERE’S NO CHANCE that rates in the U.S. will approach zero any time soon, but the mere injection of this idea into the debate by Trump is bound to upset senior citizens and other savers who want higher rates. This just ratchets up the economic uncertainty, a constant theme in this administration.
THE IDEA OF ISSUING 50-OR 100-YEAR BONDS is different; it might reduce U.S. debt servicing burdens (over $500 billion in this fiscal year) and as many Keynesians now believe, infrastructure outlays and other spending could be financed with ultra-low rates. We think a 50-year bond could be unveiled later this year.
BUT TRUMP’S DESIRE TO RESTRUCTURE DEBT by getting to zero percent would invite all sorts of unintended consequences — intensified fears of recession, a potential aversion to U.S. investments by foreigners, the threat of an inflationary bubble in real estate and other interest rate-sensitive sectors.
OUR FOCUS THIS MORNING is on the political ramifications — senior citizens vote, and they are very vocal: they want higher rates, not lower. Someone needs to tell this to Trump or he could lose altitude with still another crucial demographic group.
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TONIGHT’S DEBATE IN HOUSTON probably won’t have high ratings, but it’s worth watching on several fronts: Joe Biden and Elizabeth Warren will be on the same stage for the first time in the campaign; there will be differences on issues like guns and health reform; and someone in the second tier — Andrew Yang perhaps? — could have a breakout moment.
THE NOMINATION IS STILL JOE BIDEN’S TO LOSE but we’ve argued for months that his gaffes and lack of energy eventually may doom his campaign. Politics isn’t always fair; the media harps on Biden’s minor gaffes, even though Trump’s transgressions are far more egregious. This infuriates Biden’s advisers, who are convinced that the media is biased against him.
NEVERTHELESS, THE MEDIA WILL FOCUS AFTER THE DEBATE on Biden’s ability to counter-punch, and a genuine gaffe — or inability to find the right word — will be amplified. Perhaps, in this pressure cooker, another candidate could break out; when we talk with young people, they express real interest in Yang and Pete Buttigieg, two unlikely candidates in these uncharted waters.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
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This post was first published at the AGF Perspectives Blog.
