From Chief Investment Officer Tom Veale,
“One of the wonders of the financial world is Compound Interest. Investors loan money to financial institutions, corporations and governments based upon this true wonder. Normally Supply and Demand for credit creates the boundaries of what is offered and received regarding Interest rates for Compounding.
For much of the New Millennium so far interest rates have not been determined by the usual supply/demand mechanism. The Fed and U.S. Treasury have artificially depressed rates causing those seeking long term compounding of interest to search elsewhere for yield.
The ‘dark side’ of the compounding mechanism is called Inflation. Just like compound interest improves wealth, compound inflation devalues wealth. Our current Fed and U.S. Treasury have, for various reasons, succumbed to the popular delusion called Modern Monetary Theory. It is based on the assumption that printing money with no backing but ‘faith’ is reasonable and acceptable. The ‘positives’ outweigh the ‘negatives’ from their points of view. For the rest of the population, we have to live with the negatives of ever rising prices and loss of purchasing power of our remaining money. With 3% inflation annually the compound effect over 10 years is to lose around 25% of the purchasing value of a dollar. The 10 Year Treasury Rate remains at 1.125% annual yield. Value Line’s median yield for dividend paying stocks stays at 1.8%/year again this week.
This week the SignalPoint Market Risk Indicator declined one point to 45, which is still bearish. The MRI Oscillator is minus 1 indicating only modest downward pressure on risk. Again this week two MRI components remain bearish (both rising slightly in risk) and two remain in their neutral ranges. We also saw the major indexes flatten out this last week with advancing and declining issues being nearly equal.”
Best regards,
Tom Veale
