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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127801  
Subject: Re: Long term mtg rates headed to 3's? Date: 8/28/2014 1:57 PM
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Aside from all the fundamentalist tea-leaf mutterings.... I've been explaining why interest rates are going to stay low (very low) for decades... 'As long as the Boomer roam the earth' to be specific;

It boils down to Econ 101, supply & demand.

As Boomers continue to leave the wage-earning stage, they bring higher and higher supplies of capital to the markets, and are demanding higher and higher levels of certainty/safety.

The fractional reserve banking world DOES NOT NEED the Boomer's deposits, *ESPECIALLY* in a long-term global 'Quantitative Easing' environment. The banks only need capital reserves of about 5 cents on each dollar they lend out for profit.... and the 95 cents that they are extended by the Fed & the fractional reserve system costs them very close to 0% interest... so they simply don't *need* your money enough to pay much of anything for it's deposit.

The public is somewhat (kinda/sorta... maybe thinking about someday) deleveraging, while the largest borrowers on the rock (governments) are aggressively PRO-leveraging as hard & as fast as they can get away with.

The 80 Ton gorillas of the world of borrowers (governments) stand to lose virtually everything... most importantly, political power... if interest rates rise. Their outstanding costs of debt will rise, and their costs of outstanding entitlements will rise....

Meanwhile, the governments' "tenants" (the tax-payers) are rapidly staging OUT of their income generation and tax-paying years.

Governments find themselves in the position to do all they can to manipulate (if necessary) the interest rate markets to keep them as low-to-zero as long as possible. Fortunately for the governments, for now, the free markets are also supportive of zero interest rates, simply due to supply & demand.

The youngest Boomers, at the back end, have another 15-20 income generation years, yet... so the trend won't reverse itself for a long time (relative to human budgets, anyway) to come.

WHEN IN DOUBT; Duplicate the 80 ton gorillas as best possible...
Optimize as much profitable leverage as your cash flow and reserves can safely support!

Dave Donhoff
Leverage Planner
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