Category Archives: Interest Rates

Congratulations History is made; 10 Year Treasury Breaks a Record!

Posted on May 30, 2012 by | Comments Off

Today the 10 year treasury hit an all time low of 1.62% as of just a few minutes ago. Contrary to the confident headlines you may read tomorrow, the reasons for this are various, possibly cumulative,  and no one knows with certainty. We will give you our thoughts in order of our internal probability for clarity from our side of the fence. So here we go:

  • Fear from overseas issues (Money moving from other fragile economies into ours)
  • Fear of Equity markets (Fixed income has continued positive money flow)
  • Signal of a slowdown here in the US (Low rates often signal a slower economic time)
  • The FED has won – Recall the fed wants lower rates for housing and economic growth (We think this a low probability)

Again, any or all may be reasons, but when you read the possible overconfident headlines, remember no one knows for sure!

Have a Great Day, below is the last chart of the week, we promise!

Friday we will have a fun uplifting post that a fellow professional investor quoted to start your weekend happily!

JK

214-706-4300  www.jkfinancialinc.com

This is a two-day chart of the 10 year treasury yield. Lower chart means lower yield.

Courtesy, TC 2000.

 

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Posted in Interest Rates, Investing/Financial Planning, Market Comments, World Political

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Confessions of A Federal Reserve Official

Posted on February 23, 2012 by | Comments Off

As mentioned in an earlier post, Dr. Harvey Rosenblum was the keynote speaker at the Texas Investment Symposium Event (Tips). Dr. Rosenblum, a very candid speaker with a knack for making complex subjects understandable, (economics can be very confusing) said something during his speech, very matter-of-factly that I have not heard before from a Fed official.

Dr. Rosenblum confessed that the FOMC’s current interest rate policy no longer has the teeth prior policy makers had available them.  Long suspicious of this fact by many, including myself, it was interesting to hear Dr. Rosenblum so casually mention this fact.

Why is current interest rate policy less effective?

The following chart is of the FOMC target interest rate policy. Notice how this last cycle we have moved to zero and are holding.

Where can you go from here ?

Fed Target Rate: New York Fed.org

There are no more bullets in the gun! Notice in prior years there was room to move down (turn the heat up on the economy) and have an effect on the economy. Since we currently have a close to zero interest rate policy, it makes sense that the latest changes have had a much slower result in changing the direction of our current economic situation.

Other Operations Necessary

Dr. Rosenblum mentioned over a half of dozen NEW economic stimulus plans that were established during the 07-09 crisis, many of which are now closed, as the new open market operations (economic stimulus) levers of the future.  While there may be many new future tools for the FED to embrace our bet is an eventual return to normalcy.

What is old is New Again

Similar to that old phrase of what is old is new again, we are wishful of an eventual rising of short-term rates that will allow Fed policy makers to “re-load” the gun for the eventual next economic downturn.

Have a Great Day!

JK

214-706-4300

www.jkfinancialinc.com

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Posted in Economy, Interest Rates, Investing/Financial Planning

The FOMC Mistake; Calling it as We See it !

Posted on January 26, 2012 by | Comments Off

Yesterday the FOMC released their regular statement regarding policy and actions at 11:30 AM central time followed by an extended live Q&A with the Fed Chief,  Bernanke. We feel the FOMC has made a mistake with their statement.

Here is the specific sentence in the release that has us concerned

“In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

As is often the case when we have a strong opinion, we have made it a point to not read the various analysis before voicing our thoughts.

Here are the reasons we feel this statement was a mistake:

  1. There was nothing gained by pushing the time line out another year right now. Keeping that statement in the hat for this time next year (if necessary) would have been a much safer way to go.
  2. It is too hard to predict what the economic situation is going to be that far in the future (We liked the original runway of time as it pushed any fed decision out-of-the-way of the election.)
  3. Investor  confidence (domestic and more importantly internationally) is paramount in retaining control of US interest rates. In investment professionals minds, holding rates low until next year, no matter the economic situation was feasible. Extending the stated term another year slightly cheapens this statement AND their original statement of low rates until 2013.

“Hot on the Long End”

Ultimately what we will now even more closely watch for is longer termed bonds rates rising.  In Wall Street lingo, it is called getting “hot on the long end.”  Rates have a funny way of making officials and investors eat their words. The FOMC changing their minds in the future would not be the worst thing that has ever happened.

Have a Great Day!

JK

214-706-4300

www.jkfinancialinc.com

PS We are not being Zaggers, but do call it as we see it !

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Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments

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Moody’s Gets Serious, S&P Joins the Club- Second Warning Shots

Posted on July 15, 2011 by | Comments Off

Moody’s sounded an alarm with another warning on the US Debt situation. Before we could organize our thoughts and let you know our opinion, S&P (pdf report) also jumped on board,  noting a 50% chance of a US Debt rating decrease.

Warning Shot

As we had first mentioned in our Taps Post in Mid April, the credit agencies (S&P, Moody’s and Fitch) after receiving a black eye on miss rating the terrible packaged Mortgage products over the last recessionary cycle, are being bold and more conservative in their comments. We think caution is good, as investing is risky and pointing out possible quicksand is much better than refraining.

We think it is very likely the debt ceiling will be raised and some type of agreement will occur.

The stakes are just too high in our opinion to allow this debt issue to become insurmountable. The agreement may come in the final hour, on the final day, we hope not, but with the various political agendas at issue, it is possible. Our wish is for a longer term positively trending agreement, which unfortunately does not seem likely at this time, but we will take what we can get.

Is it possible the US will receive a downgrade!

At this point it appears a downgrade is in the cards and may occur just to save face of the rating agencies even if the debt ceiling is raised, which is the root cause of the credit rating agencies issues.

What are the effects of a downgrade?

Our belief is not much today. Interest rates may gyrate a bit, and there would be much ammunition for the talking heads and most importantly our international trading partners.  Longer term we believe a downgrade may be a good thing, serving as a wake up call. Only time will tell.

Have a Good Day!

JK

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Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments

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Goodbye QE 2, Is the Window Closing on Low Interest Rates?

Posted on June 30, 2011 by | Comments Off

Today is the last day of the nick named QE2, (Quantitative Easing.) This nick name stands for the purchase of Treasury instruments by the FED in order to keep interest rates low.

As the FED finished QE2′s sibling, QE1, last year, interest rates actually fell as there was much talk of a double dip recession.

So here we are again, right back where we started, about a year later, today being the last day of the FED purchases. This time, at least for the moment, rates are headed higher.

The following chart most closely speaks to longer term mortgage rates with the line representing interest rates i.e as the line goes up, rates are rising and bond prices falling.

We are not predicting dramatic changes or over the top inflation and price movement, for us, it is interesting to watch rates as the character has changed somewhat from just a year ago. Higher rates might lead to a stronger dollar, which might lead to lower oil prices.

Logically if rates are gradually rising, this would bode negatively against those in the major economic slowdown camp.

While much of this sounds like the “Dem Bones” nursery rhyme, “The Foot Bone is connected to the Ankle Bone…..” we thought you  might find a little of the economic anatomy we are watching interesting as well.

Have a Super Day!

JK

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Posted in Interest Rates, Market Comments

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An Evening with Richard Fisher, President and CEO of The Dallas Federal Reserve

Posted on June 14, 2011 by | Comments Off

Last night, I had the opportunity to listen to Richard Fisher, current CEO and President of the Dallas Federal Reserve and FOMC voting member in a CFA related event.

CEO Dallas Federal Reserve

Mr. Fisher’s comments were on record (reporters in attendance) unlike many prior events, and as such I am delightfully bringing you some of the more impactful comments, from my perspective.

Mr. Fisher began his speech by speaking of many of the statistics regarding the Dallas Federal Reserve bank, which I will conclude with in this post. Due to space limitations, and many readers possible short attention spans, due to time constraints, I will begin with his most interesting comments, again from my perspective.

Most of his more insightful comments came during the questions period, which I am prioritizing from my perspective.

A question from an Forex trader (foreign currency) concerning China becoming the dominant currency?  Mr. Fisher replied, from his point of view that in no way would the Chinese currency become the dominant currency in the near future, and he backed this comment with an interesting statistic that 80% of all Forex transactions involve the US, along with 37% being the Euro. Mr. Fisher did mention that the US became the dominant currency in a mere 20 years, leaving the door open for change.

A question was asked if the US markets have become “junkies“, needing more easing to sustain themselves. Mr. Fisher answered adamantly ”There will be no more Quantitative Easing”.  Mr. Fisher did not vote on the latest easing initiative, however he stands firm with his fellow governors that it was a good idea, but adamantly said there will be no more easing! In an interesting follow-up to this comment, which we very much agree with, he stated that market participants are manic-depressive, being on one end of the happy/sad spectrum at all times, and nothing in between.  Admitting that there was in deed a slowdown, which was an answer to a contagion question of Greece, Spain etc, but stating he felt “nothing even remotely close” to what we have been through over the last terrible recession.  We agree!

An interesting and important statement came from the following unrelated question “Should the Fed have a dual mandate?” (Currently the Fed has a mandate of stability AND employment, which is very unique to most reserve banks across the globe.) Mr. Fisher answered, in his opinion, “NO”, but that is the Fed’s current marching orders. He went on to mention that the Fed may, and will, if necessary take back (read–stop inflation) funds from the system if necessary to slow overheating, even if unemployment is still at a higher than comfortable level. This is an extremely important point in my mind and should serve as a warning shot over our bow for future reference.

In an interesting openness of how the Fed Policy meetings run currently (we have written on this before, some time ago, but felt it worth updating) Mr. Fisher gave the following three round analysis of how a Fed Meeting works.

  • Round 1. All Fed Governor’s state what is going on in their district and have an unlimited time to discuss their district’s situation.
  • Round 2. An all in visit on “What we should do?” about the current situation.
  • Round 3. A detailed discussion on “What we should say?” which is reviewed and discussed to an every word detail. Followed up by preperation for Chairman Bernanke’s new media interview, which we have mentioned before.  Mr. Fisher added a funny comment that Chairman Bernanke has a photographic memory, which himself and several others discovered as their prior comments had been repeated by Mr. Bernanke and questioned why the current change.

If you are still with me, you know this short, timely, post, has run much longer than I expected, so I will save further comments for a short follow-up article, (much to Kathy, our Newsletter editor’s dismay), in our soon to print Third Quarter 2011 Newsletter. Sorry for the long post, but I hope you enjoyed the insights as much as I did his visit.

Have A Terrific Day!

JK

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Posted in Economy, Education, Interest Rates, Investing/Financial Planning, Market Comments

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5 Reasons Why Interest Rates Might Be Rising!

Posted on December 14, 2010 by | Comments Off

We have crowed often and repeatedly about the fear of rising rates only to see interest rates continue to fall. Suddenly, after QE2 was announced (reminder that QE2 is an attempt to lower rates by the FED making purchases of fixed instruments) rates began to rise.

Rising Interest Rates

 5 Reasons Rates Might be Rising?

No one knows for sure why rates are rising, as there are many hands that make up the prevailing interest rate pie, but here are a few possibilities in order of our most logical possibility, in our opinion only of course:

  1. With the announcement of QE2, investors feel the economy is going to grow and are pricing bonds appropriately.
  2. Rates have been abnormally low and are reverting to the mean.
  3. Investors, who have been pushing tremendous amounts of dollars into fixed income investments are finished with their allocation adjustments and may be moving into stocks.
  4. Foreign investors are not buying as much of our fixed income investments.
  5. Inflation is upon us and rates are rising in expectation of future inflation.

Our order has been carefully stated with much greater possibilities, in our opinion, of the early items than the later.

In closing, if you get the feel we are happy with rates rising slightly, you are correct. However, we do not wish for a sudden rate increase, rather an adjustment like seasonal changes, gradual back and forth but in a higher direction. 

Have a Great Day!

JK

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Posted in General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments

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Fed Announcement-No Change Expected-Watching for Clues

Posted on April 28, 2010 by | Comments Off

Federal Reserve

Today at 1:15 pm, central time the Fed will release it’s official statement on interest rates, ending it’s two day policy meeting. While slightly overshadowed by the Goldman Sachs events as of late, the Fed’s statement is extremely important.

What we will be looking for:

Any minor changes to the language that would lead us to conclude tightening is moving closer from the Fed’s point of view. Tightening would eventually mean the increase of short term rates that have acted as an accelerate for our economy over the last several quarters.

What do we expect:

Our expectation is for VERY minor changes in the language, that would let us know the Fed is gaining more confidence in the recovery, but that a rate increase it not coming in the near term.

We will let you know if there are any major differences from prior meetings.

Have a Great Day!

JK

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Posted in Interest Rates, Market Comments

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Federal Reserve to Conclude Meeting, No Change Expected; Fun Website

Posted on March 16, 2010 by | Comments Off

Today the FOMC (Federal Open Market Committee) better known as the  “The Fed,” concludes their two day meeting with a public interest rate, and economic announcement at 2:15 Eastern Time.

We expect no significant changes in the Fed’s statements today, but possibly verbage regarding the recent Discount rate adjustment. Capital Market Participants will review the verbage for clues and changing of language looking for an indicator of a time frame for the eventual rise in the more important Fed Funds Rate. Our suspicion is this change is still a few quarters away, but we will certainly review the statement for clues.

In honor of Spring Break, and if it is raining as hard in your location as mine, you might find this FED 101 site interesting.  

 This is a pseudo animated, and highly pictorial view, of the Federal Reserve, geared towards our educators, but after 20 years of working in this industry, I found several items very interesting, and educational.  

Have A Good Day!  

JK

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Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments

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Back Where We Started From and the Race to November Mid Terms

Posted on March 3, 2010 by | Comments Off

Our headline today represents our humorous take on the levels of the capital markets as we enter the third month of the year with little forward movement in most areas, which is fine by us.   

The S&P 500, our favorite domestic index has a year to date return of less than 1%,  it’s small company brethren, the Russell 2000, has a positive print so far this year and the Fixed Income (Corporate, Treasury and non-high yield) returns, have had moderate changes as well.   

If you had closed your eyes at the first part of the year, and opened them yesterday, you would have thought it a boring first few months of the year. Not so much really!  Our “Choppy” theme, mentioned in our Q1 2010 Newsletter  (page 3) has been the occurence so far, but not for the reasons we had expected. Fears of Greek debt defaults spurred the first bit of choppiness in capital markets thus far.  We do not think this will be the only choppy event of this year.   

Economic Numbers Front and Center:   

Post 90 day treadmill, (earnings season) we turn our attention to the economic numbers for the next several weeks for clues on our economic growth.  The key economic number to keep an eye on, in our opinion, is employment related.

November Mid Term Elections

We have a race of sorts; the current government administration has great incentive to lower the unemployment rate with  November 2010 mid term elections looming, (yea we are already looking into November).  In our opinion, based on what we are hearing in recent company conference calls, employment is on the mend, but will be at a slower, more tentative pace, as companies are forced to beef up labor needs, making for an interesting summer of dialogue between parties, and possible photo finish in November.    

Lastly, the FED, as promised, will discontinue their purchase of Mortgage related securities this month. We are curious to see if rates have any immediate movement post big brother’s removal of the hand holding them down. We think the window for refinancing and super low rate mortgage purchase may be slowly closing. 

Have a Good Day! 

JK

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Posted in Economy, Interest Rates, Market Comments