Zero Interest Rates Forever?

A recent article in Bloomberg discusses the outlook for the federal deficit and potential repercussions with respect to interest rates. The article reports that the Congressional Budget Office’s release of projections late last month reflected a scenario of “steadily rising deficits,” attributable to the following: Growth in government health care spending due to the aging of the population and also because of higher medical costs. A rise in interest rates that will force the government… Read More

Jim Grant on Upside-Down Interest Rates

In an article for Barron’s last month, Grant’s Interest Rate Observer founder and editor James Grant offers insights regarding the repercussions of an ultra-low interest rate environment. Grant quips, “You can as easily imagine a five-pawed St. Bernard or a suitable candidate for public office as you can the situation of a lender paying a borrower for the privilege of extending a loan.” He points out that such an interest rate environment means that saving… Read More

Drunkenmiller and Warsh: Perspective on Fed Tightening

In an article for The Wall Street Journal, co-authors Stanley Druckenmiller (chairman and CEO of Duquesne Family Office LLC) and former Federal Reserve Board member Kevin Warsh argue that the Fed should suspend its “double-barreled blitz of higher interest rates and tighten liquidity.” “The Fed created quantitative easing as a novel crisis-response tool a decade ago,” the article explains. “It bought assets from the public and stocked them away for safekeeping. Market participants understood the… Read More

How the Fed’s Rate Hikes Affect Investors

A recent Vanguard blog addresses the issue of the Fed’s ongoing rate hike program and how it will affect investors. Here are highlights: “Higher yields on cash are good news for savers”—the article notes that since the Fed started raising rates in December 2015, investors have moved more than $60 billion into money market funds, and those inflows could rise with further rate hikes. Mixed outlook for bonds—”Bond investors might cringe at our outlook for… Read More

Preparing for Rising Interest Rates

A recent article in Advisor Perspectives addresses a number of issues related to rising interest rates and how investors can prepare for them. Here are some highlights: Yield curve outlook— The article argues that the potential for higher long-term interest rates is “still significantly greater than many forecasters would have you believe” due to the winding down of quantitative easing in Europe, inflation and rising federal budget deficits. The fixed income investor, the article says,… Read More

Rising Rates Hurt Real Estate Stocks

According to a recent article in The Wall Street Journal, the Fed’s rate-hike program is “upending real-estate investment trusts and other stocks with juicy dividend yields that had been thriving in a lower interest-rate environment.” While investors tend to purchase shares of real-estate firms and other stocks like utilities for “safe, bond-like returns,” the article reports, as the Fed implements further tightening, “the payouts on U.S. government bonds are rising and forcing investors to consider… Read More

Will a Stock Exodus Follow Rate Hikes?

In a recent Barron’s article, financial analyst Mark Hulbert wrote that many of the investment advisors he monitors on a regular basis are concerned that high interest rates will entice investors to move their dollars from equities to bonds. He cites the so-called “Great Rotation” theory that emerged in 2011 and predicted a huge shift from bond funds into equity fund as “investors came to appreciate the near certainty that interest rates would eventually rise… Read More

Interest Rates are the Market’s New Boss

Interest rates are now more important than profits for stock performance, according to a recent article in The Wall Street Journal. “The first quarter was very good for U.S. companies, as a brew of corporate tax cuts, solid global economic growth and a weaker dollar pushed profits higher,” the article says, adding that while profits will be strong all year, the first quarter will likely be “as good as it gets.” But as growth slows,… Read More

U.S. Companies Facing $4 Trillion in Refinancing

A recent Bloomberg article reports that U.S. companies will need to refinance an estimated $4 trillion in bonds over the next five years (according to Wells Fargo Securities), a concern for investors due to the rising rate environment. “Corporate America,” it says, “partied like never before on cheap money over the past decade, and now comes the hangover,” the article states. Rising rates means that debt service costs will rise which “could push balance sheets… Read More

Inflation and Stock Price Increases Causing Worry

Earlier this month, inflation and interest rate concerns sent stocks into a “historic and nerve-rattling plunge,” but the market rallied shortly thereafter, leading some experts to say that stocks can continue to rally even if both indicators creep upward. This according to an article in The New York Times. According to Brian Nick, chief investment strategist for Nuveen, while the past 20 years have seen a strong correlation between stocks and interest rates, the same… Read More