Interest Rates..Where are they headed.

This is a question we get asked at least once a day.  Frankly it is the easiest question to answer as well.  Rates are going nowhere.  They can not go down since they are at basically zero and they are not going up either.  Why? 

This goes back to the economy we have now.  The political economy that we opined on several times in the past couple of month is here to stay for some time.  The Obama economy, strangled by regulation and supported by trillions of Federal Reserve dollars, has not and can not achieve take off on it's own status.  What transpires is that mega cap stocks are making profits and with no growth economy to invest in are plowing those profits back into share buy backs and dividends.  Small business which took the brunt of the huge Obama tax increases, struggling with regulatory pressure, Obamacare rules, and not able to buy their freedom politically from such issues are hurting and hurting bad.  The fact that almost all new jobs come from businesses under 100 employees and they can not grow means they like their mega cap brethren have no reason to borrow money.  Not borrowing money means there is no pressure to push interest rates up there either. 

Note the struggle banks and mortgage companies have every time they try and build profits from higher home lending rates.   Last year they finally got over the 3% 30 year loan level and up above 4.5% to only find home buying dried up due to the higher rates.  Builders have seen huge drops in demand in the last 6 months due to those same rates.  Today rates are hovering just a few hundred basis points above 4%.  We frankly would not be shocked to see a 3% handle in the next few months.  There is just no demand in housing and without housing the economy just sinks further into no growth. 

Now if you hold stocks, mega and large cap stocks, you are doing very well.  Low interest rates have forced almost everyone into stocks.  Frankly if you own a CD or a Treasury Bond right now we wonder about your smarts.  Stocks being held up with buyback's, dividends, and low rates have a floor and we are currently fully invested in such thinking.  This market is a trader's dream, a little up and a little down with no worries of any real move either way. 

We see nothing that could change our minds on this scenario for at least another two years, even if the Republicans take over the US Senate.  We agree Hillary Clinton will win in 2016 and therefore will continue this crony capitalism with high regulations and high taxes.   The only thing that could make growth and most importantly job creation move upward would be a pro-growth new administration.  

So simply put we as mega stock investors are sitting fat and happy with Obama in office and a Clinton scenario.  Just more profits, more dividends, and more easy trading ahead in the windshield.  Yes we are screwing the young folks and the poor people but this economy is the one you got.  We suggest if you have investing assets place them in mega cap stocks and large cap index funds for retirement plans and get on board this ride.