Opening Statement from the September 2020 Dividend Gems

Opening Statement from the September 2020 Dividend Gems

Originally published on September 13, 2020

Interest Rates: The Good, the Bad and the Ugly

Once again, we would like to remind readers that interest rates are likely to remain very low for an extended period. We have been forecasting very low rates for several years. Fed Chairman Powell’s recent speech confirmed our notion of the Fed’s intention to keep rates low despite numerous global macro risks that have grown as a result of persistently low interest rates.

An extended period of low interest rates has many implications for the capital markets. First and foremost, as you might imagine low interest rates bodes well for dividend investors. The past decade has already been one of the best in history for dividend investors. The next decade is likely to produce comparable results.

Low interest rates have also created numerous problems. Several years of record-low interest rates has served as a catalyst for a variety of speculative behaviors. Overall, risk is not being adequately recognized in part because it has become virtually impossible to measure with any degree of confidence.

We have reminded readers that the stock market continues to reach new highs even though the world remains in the most severe recession on record. The masses have latched onto indexing and other forms of passive investing such as robo advisers as the “easy solution” to obtain superior investment returns. Aside from potential liquidity issues, passive investing has all but eliminated the vital role of fundamental analysis and securities valuation. Moreover, greater access to stocks via mobile apps and fractional shares has been multiplied by the malignant impact of social media to lure millions of clueless youngsters into the stock market, transforming it into a casino of sorts.

Finally, the wave of speculative behaviors seen in the equities market has been accentuated by recent changes to securities laws which now permit private equity funds (which lack the stringent transparency and regulatory oversight seen in publicly traded companies) to solicit investments directly to the public.

The decade-long search for yield has forced institutions to seek out higher-risk investments. As one example...