Interest Rate Turn?

December 19, 2016
Market Analyst, Author, and Founder of The Deviant Investor

Interest rates have bottomed and will rise substantially during the next decade.


Interest rates CAN’T rise because rising rates will crash governments, economies, derivatives, equity markets and more.


Consider the chart below for the monthly 10 year T-Note Index of Interest Rates.

Date                         Rate             Rate

Jan. 2000                  6.82%                       High

Nov. 2001                                    4.09%     Low

Apr. 2002                  5.46%                        High

June 2003                                   3.07%      Low

June 2007                 5.32%                        High

Dec. 2008                                    2.04%      Low

Apr. 2010                  4.01%                         High

July 2012                                     1.39%       Low

Dec. 2013                  3.04%                         High

July 2015                                     1.33%        Low

Average drop in interest rates was about 2.5%.

The Bigger Picture:

Interest rates bottomed in 1946, topped in 1981…and bottomed (probably) in 2016. Rates rose for 35 years and fell for 35 years.

Can interest rates go lower? Ask the machines, central banks and algos that control them.

But given the rapid rise since August 2016, it seems increasingly likely that rates will continue to rise from what looks like a generational bottom. They might rise for several decades.

What is a reasonable target?

  1. Current 10-year rates are about 2.4% and have reached a two decade declining trend line.
  2. A break into the 2.5% to 3.0% range would indicate higher rates coming.
  3. A significant break above 3.0% would strongly indicate that rates hit a generational bottom in 2016 and will rise much higher.
  4. Average drop from high to low since 1999 has been about 2.5%. If we apply that to guess the next short-term peak, then 1.33% plus 2.5% is about 4%.

Could rates rise to 4% on the 10 year note? Consider the following unlikely events for comparison.

  • The NY Times gave HRC an 84% chance of winning five days before the election, yet she lost.
  • The Brits voted for exit against all odds and polls.
  • Silver dropped from nearly $50 in 2011 to under $14 in 2015.
  • Amazon stock rose from under $10 in 2001 to over $800 in 2016.

A 4% rate seems likely by comparison. Average rate for 200 years has been over 5%.


  • My expectation is that interest rates have bottomed and will rise for years.
  • They could easily rise to 4% or considerably higher. Is 7% unlikely when the 200 year average is more than 5%?
  • Higher interest rates will hurt prices for real estate and stocks.
  • What about auto loans, student loans, credit card interest charges, massive corporate debts, real estate financing, sovereign debt service, and the coming recession/depression?
  • Derivatives? Over $500 trillion of derivatives are tied to interest rates… This could be rather difficult …

From John Rubino:

“… a picture emerges of a system that can’t handle rising interest rates, but is nonetheless getting them. The result? At best a global slowdown and at worst an epic crisis.”

From Daniel R. Amerman, CFA: The Imminent Multi-Trillion Dollar Surge In Social Security And Medicare Costs

“For decades we have known that the time would come when Social Security & Medicare costs would begin a rapid and explosive growth upwards. That time is no longer the distant future – but something that will take place next year, and the year after, and the year after.”


  • If interest rates have bottomed, they are likely to rise for many years. This will place considerable pressure on leveraged assets and the multiple $ trillions in dodgy and leveraged investments and shaky loans that might not survive rising interest rates.
  • Expect the Fed (and other central banks) to “do something” to “help” with $1 – $2 trillion deficits and rising rates. Expect “printing” dollars, massive bond monetization, “helicopter money,” more QE and other “unconventional” measures. Hyperinflation is possible in the US and elsewhere. Watch Japan and Europe.
  • Expect the Fed to rescue, as best they can, the financial and political elite. Tough luck for everyone else…
  • Bonds and stocks are vulnerable and could decline from nosebleed levels. Most other “assets” have counter-party risk – I’m not paying you because I didn’t get paid. Gold and silver should come to mind.
  • Gold and silver do not have counter-party risk.
  • Gold and silver have several thousand years of history…indicating they are a store of value. Can anyone say the same for the euro or the US dollar?
  • Looking forward to a traumatic 2017 and 2018….

Gary Christenson

The Deviant Investor

Gary ChristensonGary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.

China has only 2% of its Total Foreign Reserves in gold.

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