Thursday, February 03, 2005

Interest Rates Article

Fantastic article on interest rate increases and their historical effects by Gary Carmell via Safe Haven. He puts together a pretty good "variant perception" of what could happen to the bond market this year. Not sure if I agree with his conclusion but his observations are hard to ignore.

Gary points out that only 4 out of 56 economists believe the 10-year Treasury security will end 2005 at 4.50% or lower.

His chart reflecting Japan's interest rates from 1983 - 2004 and U.S. commercial paper rates from 1921 - 1943 is pretty cool.

Gary has studied over 150+ years of interest rate history and offers the following:
  • During the first half of an economic expansion interest rates fall 67% of the time (56% since World War II) and increase 83% of the time (89% post WW-II) during the second half.

  • As we transition to recessions rates have risen 80% of the time (70% post WW-II) during the first half and have fallen 97% of the time (100% post WW-II) during the second half of the recession.

  • Thus, recoveries are aided by dropping interest rates and recessions are typically induced by higher rates.

  • Between June 1857 and December 1945, the U.S. was in a recession approximately 44% of the time, or every 27 months with the average duration being 22 months.

  • Since 1946 the recession frequency has dropped to 16%, or every 57 months with an average duration of 11 months.

  • Our current expansion has lasted 37 months. If recent history is any guide, then we have approximately two years before our next recession.
There are many more great insights into interest rates uncovered in this article. Read the entire article here.

Daily Systems

New System Triggers
  • none.
Recently Closed Trades
  • Closed FO (BreakUp) back on Tuesday's market open with a +4.88% profit.
Current Open Systems
Symbol System Entry Date Exit Date Profit/Loss%
MGF BreakUp
1/19/2005 open +1.05%

Total +1.05%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

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