Ben Bernanke’s Secret Prediction
Former Chairman of the Federal Reserve, Ben Bernanke, has been making waves in the financial industry over the last few weeks.
He’s been hosting private dinners with Wall Street elite. It costs $250,000 to get a chair at one of these events. So, I haven’t been myself. But the details of these meeting have been leaked.
His candid forecast for future Fed action has had an impact on financial markets.
The bombshell Mr. Bernanke dropped is this… he doesn’t think the short-term Fed funds rate will be back above the long-term average of 4% during his lifetime.
That prediction flies in the face of most market prognosticators that expect to see interest rates back near this level within the next few years.
As a result, we’ve seen interest rates on US Treasuries drop to their lowest levels in months.
What’s more, the yield on the 10-year US Treasury has gotten cheap relative to other countries. The government debt of countries like France, Germany, Japan, and many others are all more expensive than the US.
And the expectation is the European Central Bank will drive interest rates even lower with their own version of quantitative easing in an attempt to spark economic growth in the Euro Zone.
This creates an opportunity for big investors to profit from the difference in yields between US and other countries. And the net effect is US interest rates come down.
Clearly the idea that ‘interest rates can only go up from here’ is flawed. As other countries drive their interest rates down, it makes US Treasuries cheap in comparison.
Here’s the thing…
There are two investments that should outperform in months ahead if this plays out as Bernanke has predicted- US Treasuries and emerging markets.
These two investments don’t usually go hand-in-hand. US Treasuries are a safe haven asset while emerging markets are riskier pro-growth investments.
But after considering all of the evidence, we could see these two investments from opposite ends of the spectrum move higher at the same time.
ETFs give you an easy way to profit from this trend. By simply buying two ETFs, you can position yourself to reap the rewards of these unusual circumstances.
Here’s what to do…
Buying one ETF with exposure to emerging markets like the Vanguard FTSE Emerging Markets ETF (VWO) and another with exposure to US Treasuries like the iShares Barclays 7-10 Year Treasury Bond Fund (IEF) is all you need to do to position yourself to cash in on this trend.
If Bernanke is right, these two investments could be the top performing ETFs throughout the rest of 2014.
Good Investing,
Corey Williams
Category: Bond ETFs, ETFs, Foreign Market ETFs, Market Analysis
