tag:blogger.com,1999:blog-5465015914589377788.post5026871837292502723..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: What Will Happen to Interest Rates?Michael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5465015914589377788.post-23048799720531703362009-12-02T11:22:30.878-05:002009-12-02T11:22:30.878-05:00Blitzer68: You're right that it isn't the...Blitzer68: You're right that it isn't the absolute shape of the yield curve that matters, but how it differs from its expected shape. The UK's 19th century usually inverted yield curve is an interesting one to try to explain.<br /><br />Big Cajun Man: Interest rate decisions can definitely become political. China still holds less than 10% of the US debt. They could cause the US some problems if they wanted to, but their influence is less than many believe.<br /><br />Preet: Thanks for the pointer to Fama. I might take some time to see how to actually make a prediction of future rates given a yield curve. It's true that the fact that the yield curve predicts future interest rates is well-known to economists. On my path to financial enlightenment, I like to do my small part in bringing truth to the masses :-)<br /><br />2 Cents: I agree that not listening to talking heads when it comes to interest rates extends to stock picking and other areas. Thanks for the kind words.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-71500128396888856442009-12-02T10:54:48.405-05:002009-12-02T10:54:48.405-05:00Well said. I believe your comments apply to inves...Well said. I believe your comments apply to investing in general as well as interest rates specifically. No one can predict the future. Listening to those who try can be really confusing, as you can always find valid arguments for both sides. It's almost like you need to approach investing as you would a strategic game. Try to eliminate as much risk as you can by having a plan for various scenarios. Thanks for the post!2 Centshttp://www.balancejunkie.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-17402624686414841422009-12-02T09:37:31.894-05:002009-12-02T09:37:31.894-05:00I believe it was Eugene Fama who cited in a resear...I believe it was Eugene Fama who cited in a research paper that the best predictor of future interest rates was indeed the current yield curve, for all the reasons you mentioned.WhereDoesAllMyMoneyGo.comhttps://www.blogger.com/profile/09185007666460707356noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23091885226485828842009-12-02T09:25:17.648-05:002009-12-02T09:25:17.648-05:00The other problem is that many interest rate decis...The other problem is that many interest rate decisions have little to do with Economic Theory and more to do with Political Aspirations. If China decided to raise their rates tomorrow (which they could), what would happen (aside from bankrupting the U.S. government)?Big Bond Manhttp://www.canajunfinances.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-79123209911820553542009-12-02T08:42:59.354-05:002009-12-02T08:42:59.354-05:00I agree that it's hard to profit from predicti...I agree that it's hard to profit from predicting where interest rates are going.<br /><br />Note that when the yield curve slopes up less than expected, this is also prediction that inflation will be less than usual.<br /><br />Btw, just as a point of interest, the bond market in the UK in the 1800's typically had an inverted yield curve where short term interest rates were typically higher than long term rates. Presumably this was because inflation was not an issue and long term rates were more stable than short term rates. Investors demanded a premium for taking on short-term bonds with fluctuating short term rates. It makes me suspect that maybe most of the reason for a sloping yield curve today is to compensate investors for inflation.Jim Turnbullhttps://www.blogger.com/profile/16141660549510415017noreply@blogger.com