Let's face it Toto, we are not in Kansas anymore

The trainees are starting to settle into there new routine, slowly but surely.

They miss their old beds, they miss their usual cooking and they have a little physically and mentally fatigue. No one is complaining, however, as they know there is an adjustment period and getting back into shape is part of becoming a sailor.

It is all part of the adventure and they have all brought a brave face and friendly smile to breakfast.

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Over the radio:

“The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1 per cent

“There was an unexpected interest rate hike announced by the People's Bank of China on Tuesday evening after reopening at the end of Lunar New Year holidays.”
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Interest rates, there are those words again; we were talking about interest rates yesterday in training. Well chow time is over….

Governments, including the US, have been keeping long term interest rates artificially low in an attempt to stimulate the economy.

In 1982 the US Federal Funds rate was over 19%, it is currently being held in a range of zero to .25%.

19% down to .25% / 0% -- OH MY GOD

This rate is lower than the last time the interest rate cycle hit their lows in 1954.

Put another way, if you were an adult the last time interest rates were this low, you would not be alive to talk about it.

So this is the first big point trainees have been asked to get clear on, if we take a conservative and longer term approach,

“WE ARE AT THE BOTTOM OF THE INTEREST RATE CYCLE – INTEREST RATES GO UP FROM HERE”

All the lessons learned from falling interest rates over the last 30 years may no longer apply!!

I hope I am making my point.

Now, does this mean that over the next six months or a year interest rates could trade sideways to down, perhaps. (down from zero?, believe it or not, they are looking at mechanisms for that right now. They have been implemented in the past in other countries, but are never sustainable).

But, perhaps not, and we are not here to play with fire.

This has major ramifications and we need to know what they are and what we need to do.

The trainers tell us that what we are about to learn is critical and not to be late to tomorrows training.

Let's face it Toto, we are not in Kansas anymore.