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Kessler Investment Advisors founder Robert Kessler gives his outlook for Treasuries and interest rates.
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Let's take a look at the ten year treasury we looked at the yield low -- short while ago.
If one of lofty as I said one point 661 point 67%.
Today.
My next guest has been a longtime bull on treasuries.
How much lower can those yields go movement much much further than you think Robert -- -- here founder of Kessler investment advisors joining us now how -- can again.
Thank you think -- thank you for having me up last time I was here we talked about what we quality output gap.
And we showed a chart of what it looks like the output gap is that excess capacity that's in the economy.
And we know to get rid of it and which determines where rates are going to be some extent we need to produce GDP that's going up.
And today at the Fed meeting which we can talk about -- brief moment that the Fed meeting one of the things we know they're going to say is they go to reduce.
-- concept of where GDP in the United States will be in fact they're going to reduce it probably to 2%.
So talking about that output capped at 2%.
If we kept going at 2% the Fed probably would raise rates until 201820192020.
Then that means that six years more than they're saying right now it's.
But like on the outlook look at the longer term rates which Arab also not sure auction of Federal Reserve but also of people's flight.
To quality and safety.
And one.
I get you can go ahead I don't know about the tenure peer group has been you can go below zero.
On a bond yield which is what exactly what we've been seeing lately just in Switzerland and and -- Our guess what we're minus a quarter of 1% -- -- was seen as low as minus points 75.
And here we are at 167.
But a very good analogy to this is something that we really don't like to talk about a great deal but how does this look like compared to.
To Japan.
Because Japan twelve years ago hit approximately.
167170.
On that ten year bond.
How did it to over the next twelve years while they're trying to get out of this kind of -- that got into and the answer is that ten year treasury.
Outperform the Nikkei average virtually every year -- 176.
And in fact that return.
Looked very good -- after awhile.
Because we were looking at a market that when no place like you sand that our -- treasuries wolf per could well outperform -- and stock market for the next.
Decade plus -- it it certainly might be reasonable if you look at the past decade.
If you look at stocks and 19992000.
We were at roughly a certain point on the S&P index.
Here we are twelve years later.
And when no higher.
And treasuries have in fact.
Outperformed virtually every asset class for the last 1020 and thirty years so could we actually outperform again.
-- -- With a rate be as high as the outperformance in the past probably not because things are slowing down pretty quick.
Name quickly -- one thing that could force.
People to change their risk tolerance they could essentially force individuals back into riskier assets.
Like stocks because that's clearly what the -- -- -- wants to happen.
What again I think that it.
Reason you go to stocks is because you see future growth.
And if we're going to only hear about lowering growth.
It's a hard sell.
It's -- same concept of saying I want a long term big growth cap stock with a big dividend yield.
And the answer to that is.
We know from experience that those stocks also come down when the stock market comes down so you may be getting 4% and set of 167.
But if that 4% goes negative in terms of the value of the underlying company.
You -- haven't done that well so -- you really need to begin to look at treasuries -- in a slightly different way.
This is really where the world -- is this is where the world has been and a probably doesn't look like it's going.
Quickly any place else.
-- great saying thank you is -- when -- come back very soon.
Again you've been right and right for a long time when everybody else -- and then bond bubbles can burst Robert thank us thank you for having Robert Kessler.
The quarter.
