Interest Rates

  • 21 Jul
    Higher Interest Rates Aren’t A Given, But Investors Should Prepare Anyway. Find Out Why.

    Higher Interest Rates Aren’t A Given, But Investors Should Prepare Anyway. Find Out Why.

    • Rates cannot go lower but higher rates would destroy wealth and lead to a recession.
    • The FED is in a difficult position and rhetoric shifts can be expected.

    Introduction

    It is every central banker’s target, the elusive 2% rate of inflation. We cannot know when, but should expect that it will be achieved and prepare accordingly. Since rising interest rates help to keep inflation in check, once the target is reached, as strange as it sounds, rates should also rise to compensate. This article is going to analyze what is happening, what will probably happen, and how it will affect investments. More →

  • 13 Jul
    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    • Almost 30% of global sovereign debt comes with a negative yield.
    • The situation is much worse in Japan and Europe than it is in the U.S.
    • Investors should enjoy the asset inflation party while it lasts but also be prepared for the worst.

    Introduction

    Negative yielding debt seemed impossible and illogical for a long time, but it suddenly became a reality a few years ago and now we are seeing it slowly become the new normal.

    This isn’t just strange, it’s dangerous as risk averse investors—like pension funds and insurance companies—are forced to invest in assets that have traditionally been considered safe but that have now become risky, and their returns minimal. Those low returns will result in lower pensions and lower savings which will create new troubles in the future. More →

  • 11 Jul
    Watch Out: The FOMC’s Current Stance Could Impact Your Portfolio in the Long Term

    Watch Out: The FOMC’s Current Stance Could Impact Your Portfolio in the Long Term

    • Bonds are becoming riskier as yields are falling.
    • Inflation is at 1.2% and very likely to get higher as full employment is approached.
    • The FOMC predicts stability which could create a great environment for traders.

    Introduction

    On July 6 the Federal Open Market Committee (FOMC) June meeting minutes were released. As they give clear insight into how the controllers of our monetary policy think, it is very important to analyze the minutes in order to better position one’s portfolio and also execute short- and medium-term trades. The FOMC gave a clear indication of their expectations in relation to future GDP growth, unemployment, inflation and its federal funds rate. All of the mentioned indicators will have different effects on various investments. More →

  • 24 Jun
    How to Prepare Your Portfolio For The Next Recession or Stock Market Crash

    How to Prepare Your Portfolio For The Next Recession or Stock Market Crash

    • The risks of a slowdown are higher than the upside.
    • Fundamental trends are negative in advanced economies while emerging markets show higher growth rates and are cheaper.
    • It is important to create a diversified portfolio with uncorrelated assets.

    Introduction

    In an environment where it seems maximum potential for the U.S. economy has been reached, the St. Louis FED chief, James Bullard, has said in his most recent report that he favors only one interest rate increase through 2018, which would at best keep things stable. His view is further supported by the fact that the unemployment rate is sitting at below 5%, and the Personal Consumption Expenditures PCE inflation—measured by the Dallas FED—is at 1.84%, both of which signal that the economy has reached its maximum potential. More →

  • 23 Jun
    Will There Be A Long Term Impact To The Fed’s Shift In Rhetoric?

    Will There Be A Long Term Impact To The Fed’s Shift In Rhetoric?

    • A positive outlook seems more political than realistic as the FED is out of maneuvering power.
    • Keeping interest rates unchanged is the best and the only thing the FED can currently do.
    • Low interest rates will weaken the dollar, boost exports and increase corporate earnings in the upcoming earnings season.

    Introduction

    In FED’s Chairwoman Yellen semiannual policy report, the rhetoric has significantly changed since the last report in February. In short, the full employment target is almost reached but the inflation rate is still below the targeted 2% and the expectations for the reaching of that target have been changed from short term to medium term. Further, the latest job reports show a slowdown in jobs increases which creates a bit of a scare. The FED estimates the slowdown to be transitory. More →

  • 29 Apr
    Monetary Policies – US, Europe, Japan and China

    Monetary Policies – US, Europe, Japan and China

    • Central banks hesitate to increase interest rates.
    • Monetary easing does not manage to fuel inflation.
    • If inflation arises stocks should be the best protection.

    Introduction

    The central bank of a country determines the base interest rate at which it gives loans to banks who add a risk premium and give loans to corporate and private customers. The base interest rate is therefore the primary factor for the stimulation of economic growth and reach of target inflation. More →

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