Reames Financial
 
Interest rates have to go back up, don't they?

No BS Weekly Update - December 19, 2011
In This Issue
Performance
Headlines
Recipe
Green Fact
Dear ,
 
Interest rates have to go back up, don't they?

That's the conventional wisdom.  Take a look at this screen shot from Bankrate.com that shows the current top 3 national offerings for a 5 year CD.

5 Year CD
 
The top rate is 1.93% offered by a 1 Star bank (as rated by www.bankrate.com).  If you want the safety of a 5 Star bank you can only get 1.82%.  That's pitiful isn't it? 

It gets even worse.  Take a look at this screenshot from YahooFinance.  Here is what US Treasuries are currently paying:

Treasuries

As you can see, if you loan the US Government money for 5 years, they will pay you .815%.  That's less than 1% per year folks!  There are many many people out there who need that interest to fund their retirement and pay their living expenses.  What's a person to do?

Interest rates have to go back up, don't they?

Not necessarily, at least not in the near future.  Take a look at these two charts.

Japanese Rates

As you know we have often written about the similarities between what Japan has gone through over the last twenty years and what we are going through now.  For those that think interest rates have to go back up I would suggest you take stock of this chart.  The interest rate in Japan has been below 2% for well over a decade.

But that's Japan, that can't happen here can it?  Take a look at this chart:

Interest Rates 
 
Not only can it happen here, it HAS happened here.  As you can see, interest rates in the US stayed below 2% for well over 20 years back during the last depression.  So apparently interest rates don't "have to" go back up. 

But that was during a depression.  That can't happen again can it?
 
As you know folks we have continually maintained the stance that we don't think we are out of the woods yet.  So while the financial media in our country has been downplaying the possibility of a recession/depression, take a look at this headline from the Mail in Great Britain on December 16, 2011.
 
Depression

Now I can't say with any certainty exactly what will happen with interest rates but here is what the Fed said on August 9. 2011:

"To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.  The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."
 
Notice it says "at least" through mid-2013.  So if through mid-2013 is the least amount of time, what do you want to bet that it will be longer than that? 
So no folks, interest rates don't "have to" go back up, at least not any time soon.

Would you like some good news???

At Reames Financial, in conjunction with a firm who many consider one of the premier fixed income firms in the nation, we have been developing a strategy to help take advantage of some of the imbalances created by the financial repression in the system today.

What is Financial Repression?
Financial repression is any public policy designed to influence the market price of financing government debts. 

- Direct methods include: setting target interest rates, monetizing government debt or implementing interest rate caps.
- Indirect methods include: policies reducing the amount of debt or currency, such as minimum holding requirements of government debt for banks and pension funds.

The U.S. and other developed countries have been artificially compressing short- and long-term rates to more easily service increased debt loads, while also encouraging corporate/consumer borrowing to stimulate growth.

While effective from the government's standpoint, financial repression acts as a stealth tax, with borrowers ultimately benefitting at the expense of savers and investors.  Financial repression policies have led to negative real short interest rates (after inflation).

After Inflation
 
If we take a look at recent market conditions we can see that they reveal several timely opportunities for investors ready to take a small step up in potential risk in exchange for a step up in potential reward.

What are the opportunities?

Glad you asked!  As I mentioned, in conjunction with one of the premier fixed income firms in the nation, we will be presenting our newest strategies for dealing with this financial repression crisis.  Please join us for:

Stepping out of Cash - Strategies for Putting Cash to Work!
During this busy holiday season we have plenty of meetings, parties, and events to go to so we are going to try something different.  We are going offer our newest study as a webinar on December 29, 2011 and again on January 4, 2012.  The webinar will be offered at 11:00 AM, 2:00 PM, 5:00 PM and 8:00 PM both of those days.  That way you can learn from the comfort of your own home.

What will we cover?

We will take a look at what led us to this point of extremely low interest rates, the outlook for those rates going forward, and then most importantly we will share with you some exact strategies on ways you may be able to benefit from this artificial lowering of interest rates.

If you would like to join us please click on the link below. 
If you can think of anyone else who might benefit from this presentation, please feel free to forward this newsletter to them!

ECONOMIC CALENDAR:
Monday - Housing Market Index
Tuesday - Housing Starts, Redbook
Wednesday - Existing Home Sales
Thursday - GDP, Jobless Claims, Consumer Sentiment, Leading Indicators
Friday - Durable Goods Orders, Personal Income and Outlays, New Home Sales

 
Performance


12_19_11_Chart

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

Headlines

The U.S. House of Representatives On Friday approved a nearly $1 trillion bill to fund the government through the rest of the fiscal year that runs to the end of September 2012. Republicans and Democrats have been haggling for several months over spending plans for the rest of the fiscal year. The fate of a temporary payroll tax cut, however, was still undecided as of mid-Friday.[5]

 

Gold futures climbed Friday to break a four-session losing streak, but prices finished the week with a loss of 6.9%.[6]

 

The final convoy of U.S. troops left Iraq on Sunday, bringing an end to almost nine years of war in which tens of thousands of Iraqis and nearly 4,500 Americans died, media reports said.[7]

 

Kim Jong Il, the dictator who used fear and isolation to maintain power in North Korea and his nuclear weapons to menace his neighbors and threaten the U.S., has died, North Korean state television reported early Monday.[8]



Quote of the Week

"The happiest moments of my life have been the few which I have passed at home in the bosom of my family." - Thomas Jefferson

Recipe of the Week


Homemade Eggnog


12_19_11_Recipe

 

Who knew making your own eggnog could be so easy?
Recipe by: Sharon Tyler Herbst | from The Ultimate A-to-Z Bar Guide

 

Ingredients:

12 eggs, separated

1 cup sugar

16 oz. (1 pint; 2 cups) brandy

16 oz. (1 pint; 2 cups) bourbon or dark rum

32 oz. (1 quart; 4 cups) milk

1 tablespoon pure vanilla extract

32 oz. (1 quart; 4 cups) whipping cream

½ tsp. salt

freshly grated nutmeg

  

Directions:

Beat egg yolks with the sugar until creamy and light. Stir in brandy, bourbon, milk, and vanilla; cover and refrigerate for at least 4 hours, or until very cold. Whip cream until it forms soft mounds; fold into eggnog mixture. May be refrigerated for 1 to 2 hours at this point. Just before serving, beat egg whites and salt to the soft-peak stage; fold into eggnog. Sprinkle with nutmeg.

  

NOTE: Only use pasteurized eggs when making your eggnog to avoid salmonella.

 

 

 

Green Living

Properly Dispose of Wrapping Paper


Do not put gift-wrapping paper in the fireplace. Putting wrapping paper in the fireplace may result in a very large fire, throwing off dangerous sparks and embers that can lead to a chimney fire. For safety's sake, and for the environment, recycle it instead.

Learn how to prevent a fire and what to do in case a fire starts in your home by checking out these resources from the U.S. Fire Administration: www.usfa.fema.gov/citizens/focus/holiday.shtm

 
Share the Wealth of Knowledge!

Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!

 

 

 

Securities offered through Foothill Securities, Inc. Member FINRA/SIPC.
Reames Financial is not an affiliate of Foothill Securities, Inc.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

 
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

 

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

Past performance does not guarantee future results.

 

You cannot invest directly in an index.

 

Consult your financial professional before making any investment decision.

 

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

 

These are the views of Reames Financial and not necessarily those of Foothill Securities, Inc., and should not be construed as investment advice. Neither Phil Reames, Reames Financial, nor Foothill Securities, Inc. gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

 

[1] http://money.cnn.com/2011/12/19/markets/premarkets/index.htm?iid=Lead  

 

 
Phil Reames
Reames Financial
1856 Skyler Dr.
Kalamazoo, MI 49008
269-349-3966