Trump, Greenspan and How Interest Rates at 8% Could Crush Your Retirement Plans

I was re-reading Alan Greenspan's book "The Age of Turbulence" (Penguin Press, 2007) and noticed that I seriously marked up one page I found utterly shocking!

Alan writes on page 484; "But for illustrative purposes, if real rates on ten-year U.S. Treasury notes were to rise by 1 percentage point from today's 2.5 percent (owing to a fall in global savings intentions) and if fiat-money inflation expectations added the 4.5 percentage points it has implied in the past, that would create a nominal yield for the ten-year note of 8 percent." He goes on to say "...sometime before 2030 the world is likely to be trading ten-year U.S. treasuries at a rate of at least 8 percent. (underscore mine)

Using an Excel spreadsheet, by my calculations a typical intermediate fixed income mutual fund with a 6 -year duration could lose more than 65% of its value if Greenspan's predictions are correct by 2030.  

My personal opinion is the "low" in bonds occurred during the fall of 2016, with the ten year Treasury at about 1.65%. My current belief is that we're never going the way Europe is going with zero or negative interest rates. If #MAGA is successful, we're going to import inflation back to the US.

As an former CBOE-options-market-maker-turned-investment-advisor, I know I can hedge most stock and ETF portfolios with "put" options to potentially protect the downside.

But truth be told, there isn't much any advisor can do to offset mutual bond fund losses during a multi-year, rising interest rate environment.

This is the only reason I became licensed to sell fixed annuities in December 2018. See the link to the Forbes article below.

If you're in, or preparing for retirement, please talk to your advisor, or contact Cenacle Capital Management, at 847-686-4800, and discuss the most hated product in the industry and why it just might be the an unexpected answer to preserving cash flow income in retirement.

Forbes, When To Replace Bonds With Annuities; https://bit.ly/2Jfz1j0

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