Give it up on Fed interest rate concerns
By Dian Vujovich
More psychically powerful than spaghetti charts warning of the possibility of a coming hurricane, talking heads have been having a heyday projecting, rejecting, and pretending they know what Federal Reserve Chairwoman Janet Yellen will announce at tomorrow’s meeting.They don’t.
So, while no one will know if there is going to be a relatively teeny weenie increase in short-term rates, or no increase at all, until Yellen speaks, here is some what-will-happen-if points of view gleaned from a host of CNBC stories relating to the upcoming Fed meeting:
On the one hand, when interest rates go up, so will mortgage rates. That move, according to one source “ could put pressure on home prices, which have bounced back more than 50 percent since bottoming out in early 2012.”
From another CNBC story: “Total mortgage application volume decreased 7 percent on a seasonally adjusted basis for the week ending September 11th versus the earlier week, according to the Mortgage Bankers Association (MBA).”
On the other hand, mine, since the housing bubble burst it has become more difficult for average Americans to qualify for mortgages as lenders have required higher credit scores and heftier down payments. If salaries remain stagnant, any increase in rates and prices could make the home-ownership housing problem bigger than it already is.
• On stocks, bonds, and mutual funds.
First, stocks. “If you agree … that the bull market does not end with the first rate hike, and you think higher equity prices await us in the future, then the investment opportunity has already been presented to you,” said Dan Greenhaus, chief global strategist at BTIG, in a “Squawk on the Street” interview. “The only question is how much further do equities have to run before the inevitable cycle runs its course?”
Re bonds, Morgan Stanley is “ advising clients to stay long notes in the five- to 10-year duration and to anticipate a widening in the difference between yields on five- and 30-year U.S. government debt. The firm advises clients to use “steepeners,” or derivatives, to play the yield curve between fives and 30s.”
Now, mutual funds.
CNBC’s Eric Chemi’s piece, “How will newbie fund managers handle their first Fed hike?” reminded readers that there were no iPhones or Twitter the last time the Fed raised interest rates in 2006. And, that not all mutual fund managers working today have ever worked in a rising interest rate environment.He wrote that ” there are so many financial professionals now who have no experience with this. To be specific, that number is 13.9 percent, according to data from eVestment.”
In that same piece, Douglas Kass, president of Seabreeze Partners Management, said, “The general lack of experience of many investment professionals also applies to the lack of experiencing a bear market in bonds—and inexperience of a bear market in stocks,” Kass, whose office is in Palm Beach, continued, “We have been in a bull market for bonds for over three decades and a bull market in stocks since 2009.”
And he added that “lack of experience will likely be manifested in a lot more volatility across numerous assets classes including stocks, bonds and more.”
In the end, while it may seem as though there is nothing else in the whole wide world going on on Wall Street, and, that life as we know it will cease to exist if there is an increase in interest rates, don’t buy the hype. It’s not worth it.
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