July 10, 2015

Our guest is taking on the Wall Street consensus. The overwhelming sentiment from economists, analysts and strategists is that the great bond bull market, particularly in U.S. Treasuries, is over.  Treasury bonds have been described as extremely overvalued, risky and undesirable.  Not so says global bond manager Robert Kessler. He is sticking with his decade long, bullish view on Treasuries and says the Federal Reserve is in “no position to raise interest rates.”

WEALTHTRACK Episode #1203; Originally Broadcast on July 10, 2015
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Consuelo Mack

“Heightened Alert” That was the headline from Evercore ISI’s report to clients this morning. Run by Ed Hyman, Wall Street’s number one ranked economist and exclusive WEALTHTRACK guest over the years, the top-rated research firm noted that a series of events in China, Greece, the NYSE shutdown and the S&P’s plunge yesterday have put us in a period of “heightened alert.”

Despite a rebound in stock markets today, the situation remains extremely dicey in both Greece and China. The Wall Street Journal had an excellent background piece on its front page today (China’s Moves Fail To Tame Stock Market) on the scope of the Chinese market sell off and the near panic moves taken by the Chinese government to stem the slide. Whether this is one of those dramatic corrections that periodically happens in developing markets, or a larger economic and policy crisis in China remains to be seen, but it combined with Greece’s serious threat to the Euro is unsettling to say the least.   

Ever since WEALTHTRACK was launched ten years ago Wall Street forecasters have consistently gotten one prediction wrong. How many times have you heard economists, analysts, strategists, columnists and even Federal Reserve officials warn us to prepare for rising interest rates?

The overwhelming sentiment has been that the great bond bull market, particularly in U.S. Treasuries, was over. Treasury bonds have been described as extremely overvalued, risky and undesirable. (Of course, upheaval in China and Greece have driven investors to seek their safety in recent weeks!) 

The one lone and dependably contrarian voice against this anti-Treasury chorus has been a WEALTHTRACK guest since the beginning, and he will join us again this week. He was correct back in 2005. He has been through the years since, and he might prove to be right still.

Robert Kessler is Founder and CEO of Kessler Investment Advisors, a manager of fixed income portfolios, with a specialty in U.S. Treasuries, for institutions and

high net worth individuals globally.  For years, Kessler and his team have been tracking several indicators that continue to convince them that rates will remain low.

One is not widely followed by the public, but it is by Federal Reserve officials. It’s called the “output gap” and it measures the difference between the economy’s actual growth and its potential, in this case between real GDP, that’s excluding inflation, and the Congressional Budget Office’s measure of potential GDP growth. The output gap is currently about 2.5%.

For an economy growing around 2.2%  throughout this recovery, that slack in the economy is sizable. As the New York Fed wrote recently:

“Resource slack by this measure seems larger than that implied by most estimates of the unemployment gap.  Historically, inflation tends to be restrained if the economy is operating below potential.”

Restrained it is!  Another key piece of evidence cited by Kessler for continued low rates is inflation.  By a measure of consumer price inflatio , the core PCE, or Personal Consumption Expenditure Price Index (excluding food and energy prices), inflation has  been running well below the Federal Reserve’s target of 2%. As Ed Hyman’s group wrote recently, inflation is MIA.

In this week’s interview, Kessler will explain why he is sticking with his decade long, bullish view on Treasuries, and why he is making the provocative assertion that the Fed is in “no position to raise interest rates!”  

If you’d like to see the show before it airs, it is available to our PREMIUM subscribers right now.  We also have an EXTRA interview with Kessler about one of his personal

long-term investments, available exclusively on our website.

Enjoy your summer weekend and make the week ahead a profitable and a productive one.

Best Regards,


Mathews Asia


No Bookshelf titles this week.


  • Raise some cash
  • Use in market decline
  • Valuable in a deflationary environment
No stock mentions in this episode.

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In his professional life Robert Kessler manages fixed income portfolios, particularly of U.S. Treasuries, for institutional clients all over the world.  His job frequently takes him to China where he has found another investment for his personal portfolio.

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