Stunning Move in Interest Rates…..Can the Economy handle it? We think YES!

Two weeks ago we mentioned here in our “Move over Equities Fixed Income is the Boss” post that Equity/Stock markets have taken a back seat to Fixed/Bond/interest rates. Little did we know what was about to happen!

Interest Rates are in Total Control at the Moment

After Big Ben pulled the punchbowl  (which he really did not, only stated the obvious, that stimulus cannot go on forever) last week, investors have become fixated on rates, rightly so. Here is what the 10 year treasury looks like today (2.55% up a whopping .95% from just a few weeks ago.)

Can the US Economy take Higher Rates?

• Higher borrowing costs
• Higher Mortgage rates
• Lower Profit Margins especially in heavily debt ridden companies

These are just a few examples of the effects of higher rates.

we think the economy can handle higher rates!

Our belief is that the economy, in more of a tortoise than a hare form, can handle the higher rates. IF RATES DO NOT GO TOO HIGH TOO FAST…..We will be closely watching the economic numbers but if correct, lower equity prices may present a more reasonable entry opportunity.

Break In: Did Bernanke have the Data?

I  write these posts a day or so in advance. With this week being very heavy on Economic numbers, inquiring minds want to know if Bernanke had the economic data from this week early as it has been very positive. No matter, an adjustment will be necessary by companies to accommodate the rate headwinds, again, we think we can do it!

Have a Great Day!

John Kvale