Saturday, June 15, 2013

Marc Faber : Interest Rates may stay low

TGR: What factor will determine whether or not bonds decline?

Marc Faber : The performance of the global economy. It is obviously not performing well at the present time. And for that reason, interest rates may stay low. I want to make one thing very clear: Interest rates will one day be higher than they are now. The question is when? This year? In five years? But the sentiment around bonds remains negative, while bullish for stocks. Holding bonds for a while is not a bad tactic: If there is a serious correction in the stock market, or a bear market in stocks emerges, the psychology driving investors could change from an inflationary psychology to a deflationary psychology.

The current 10-year U.S. Treasury yield of 1.7% is not attractive. It would be attractive with a deflationary bump. But then only for a year or two because tax revenues would collapse and more money would be printed and inflation would rebound. I am not recommending that people buy U.S. government bonds: I do not buy them. I am simply advancing an argument about why they may not collapse tomorrow. Personally, I stick with corporate bonds. - in goldseek


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