Interest Rates 02 (Nov 14 - Dec 25)

[behappyalways]

Questor share tip: US Federal Reserve plays Russian roulette with interest rates
http://www.telegraph.co.uk/finance/mark ... rates.html

[winston]

Here's how the wealthiest Americans are preparing for higher rates

Source: Bloomberg

http://thecrux.com/heres-how-the-wealth ... her-rates/

[winston]

The Rate Hike Ship Has Sailed: Goldman Sees “Higher Probability Of Liftoff Not In 2016 But In 2017”

By Tyler Durden

http://www.thetradingreport.com/2015/10 ... t-in-2017/

[winston]

Warning: A Fed Rate Hike Will Doom These "Zombie" Companies By DAVID ZEILER

The Bottom Line:-

One of the ramifications of a Fed rate hike will be the culling of zombie companies – firms with a lot of junk-rated debt that have stayed alive only because of low interest rates.

We've already seen a spike in defaults, and it's projected to get worse next year. Now more than ever, investors need to take a hard look at a company's debt position before buying the stock.

Source: Money Morning

http://moneymorning.com/2015/11/11/a-fe ... companies/

[winston]

Long-Term Rates to FALL When the Fed RAISES Rates

By Dr. Steve Sjuggerud

In a couple of weeks, the Federal Reserve will likely raise interest rates...

It's nearly universally accepted that when the Fed raises short-term interest rates, long-term interest rates will go up, too. (Long-term rates include treasury bonds and mortgage rates.)

Most people don't even think what I'm talking about is possible... They think that when rates go up, ALL rates go up.

So here's the question of the day:

How could long-term interest rates possibly go DOWN if the Federal Reserve is close to RAISING short-term rates?

I will answer that for you today...

There's a 68% chance of a rate hike by the Federal Reserve at its meeting on December 15-16. (That percentage comes from Bloomberg.) Those are the strongest odds of a near-term rate hike in a while.

With such strong odds of a rate hike happening in just a few weeks, we went back and looked at what has happened during rate-hiking cycles over the last quarter-century. Here's what we learned...

Over the past 25 years, the Fed has entered three rate-hiking cycles. You might expect that long-term interest rates (as measured by 10-year U.S. Treasury bonds) would rise dramatically when the Fed hiked short-term rates.

That's what most people believe happened... But it's not actually what happened.

Take a look...

10-Year Treasury Rates
Date Rate Hike Begins Rate Hike Ends Rise/Fall
1994-1995 6.1% 6.2% 0.1%
1999-2000 5.8% 5.1% -0.7%
2004-2007 4.6% 4.5% -0.1%

During the mid-1990s rate-hike cycle, 10-year Treasury bond interest rates rose just 0.1%...

Long-term interest rates actually fell during the last two rate-hike cycles. So you can visualize it, here's what short-term and long-term rates looked like the last time around...

So, do long-term rates have to rise when the Federal Reserve increases short-term rates?

If you look at the past 25 years, the answer is, "No."

Yes, the Fed will hike short-term rates at some point – likely in December – but history shows a Fed rate hike is nothing to worry about when it comes to long-term interest rates.

Don't let your mortgage broker or banker threaten that your 30-year mortgage rates are about to go up. History tells a different story.

In short, don't worry so much.

Source: Daily Wealth

[winston]

Negative interest rates to hit the US

By Simon Black

Source: Sovereign Man

http://www.thetradingreport.com/2015/11 ... it-the-us/

[winston]

Government bond yields with durations up to two years are now negative in Switzerland. As well as Germany. Finland. The Netherlands. Austria. Belgium. Denmark. France. Ireland. Sweden. Italy. Spain.

[winston]

Opportunity in Higher Interest Rates

Financial institutions have had an incredibly tough time turning a profit since the Great Financial Crisis of 2008.

Some of that challenge was the banks’ doing… as they had to clean up the messes they made for themselves during the lending spree that led to the U.S. property bubble. But not all of it is the banks’ fault.

The rest of the blame falls on the shoulders of the Federal Reserve, which reacted to the financial crisis by pinning interest rates just a sliver above zero – in turn, killing the golden goose that banks have relied on for centuries.

So while the Fed succeeded in breathing life back into the stock market, financial stocks have sucked wind. Take a look at this chart, which shows the S&P 500 (SPY) about 35% above its October 2007 prices, while the financial sector (XLF) is still 31% below that level.

See larger image

Financial stocks have been out of favor for nearly the entirety of the current bull market. But that tide has started to turn in anticipation of the Fed’s looming rate hike.

And regional bank stocks, in particular, are doing even better. These stocks are up nearly 12% year-to-date, easily beating the S&P’s measly 2% gain.

Here’s a ratio chart, which plots the price of regional bank stocks (KRE) divided by the price of the S&P 500 (SPY). As you can see, regional bank stocks have thrived alongside speculation of a 2015 rate hike. Take a look…

See larger image

If the broad stock market manages to catch (and maintain) a bid for the next several months, through its seasonal sweet spot, regional bank stocks are poised to outperform.

We intend to be in this new position for at least two months… so there’s still time to get in.

Source: Economy & Markets

[winston]

What Happens if the Fed Hikes Rates Next Week? By Harry S. Dent Jr.

First of all, I think we’re all a little sick of hearing whether the Fed will raise rates this month – or whether they should’ve done it sooner. We’re talking about 0.25% if they do it!

After seven years of zero interest rate policies, economists should be much more worried about the damage done from speculative bubbles and mal-investments created from such rates.

But the reason the markets could have a larger response to a hike is that they’re not used to a one-and-done, which is what I see happening.

Instead, they’ve witnessed the Fed going in one direction or the other for significant periods of time. So they assume that once they start hiking, they’ll continue to do so for years, even if very slowly.

But I don’t see that happening here.

If the Fed finally does raise rates, a whopping 0.25%, I predict that will be the last rate hike for a long time. And with worsening demographic trends here and around the world (especially in Europe), I don’t see much of a debate on the matter.

Just think – Japan’s fallen back into recession after the strongest QE ever.

Meanwhile, Europe is languishing, China and emerging countries continue to slow, and retail sales are weakening in the U.S.

Top it off with escalating geopolitical events and tensions – even a possible stock correction just ahead – and there’s a chance the Fed may hold off at the last minute.

But for now, the markets are largely convinced a hike will happen…

So let’s just cover our bases: what will that look like if it occurs?

For starters, I think stocks would react favorably just a little, but only at first. In the short-term, it would be a sign that the Fed felt confident in the economy enough to finally raise rates.

And for bonds, it would only be a negative for prices as yields would naturally start inching up.
But that’s just the beginning…

At some point, now very likely in 2016, we will have another financial crisis that will send the yields on riskier bonds soaring exponentially.

We could even see an initial, smaller spike in longer-term Treasury bonds. But before you know it, those yields will head down, and prices up, as Treasurys become the safe haven again.

That’s just what happened in late 2008. But let’s look more closely at a much more extreme example that came from 1932 to 1940.

In late 1931 when the Fed was faced with growing deficits, they decided to hike short-term rates big time – from 0.6%, all the way to 3.3%, which we now look back on as a huge mistake.

At first, long-term Treasury yields bounced from 3.2% to 4.2%. But then, it switched, and eventually yields fell from early 1932 into late 1941 to as low as 1.8%.

And if that sounds bad, corporate bonds reacted much more extremely. Take a look:

During this time, the highest quality Aaa bonds spiked from 4.2% to 5.7% into mid-1932 as stocks bottomed. (Note the yields here are inverted, with rising rates pointing downward, to reflect lower bonds prices and a growing financial crisis.)

Next in line, Aa bonds rose from 4.7% to 6.9%...

A bonds from 5.8% to 9.0%...

And the lower grade Baa bonds from 7.0% to 13.0%!

Now, I don’t expect our much more accommodative Fed of today to react like this – not in an economy that’s been weak for seven years after a crisis.

This is just meant to illustrate that yields spike in the short-term when the markets figure out everything’s crashing!

But I do still see a spike ahead – just one that comes from a worsening economy and higher default rates.

Which is why I could care less about miniscule Fed rate hikes, and am a lotmore concerned about economic weakness.

I do see a short-term spike happening in 10- and 30-year Treasurys as I told Boom & Bust readers in October. But I don’t expect it to last for long – especially when deflationary trends become more obvious. Higher risk bonds, however, I expect will rise in rates and plummet in value for years.

Ultimately, deflation in the years ahead will bode well for the highest-quality bonds, and poorly for the lower-quality ones. Just look at junk bonds, which are down nearly 20% from their highs!

That’s why I advise you get out of higher-risk bonds sooner rather than later.

But don’t load up on longer-term Treasurys just yet.

Source: Economy & Markets

[winston]

Here's why the Fed won't raise rates much in 2016

by Dr. Steve Sjuggerud

Source: True Wealth

http://thecrux.com/sjuggerud-rates-unli ... 1-in-2016/