A Quote by Jane Bryant Quinn
Never try to time the bond market. Anyone who claims to know the future of interest rates is certifiable.
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Since 2008 you've had the largest bond market rally in history, as the Federal Reserve flooded the economy with quantitative easing to drive down interest rates. Driving down the interest rates creates a boom in the stock market, and also the real estate market. The resulting capital gains not treated as income.
To investors, job creation is a second-order effect. Market participants care first about interest rates, exchange rates, bond prices and the one great factor that affects all three: the long-term solvency of a bond company called the U.S. government.
The fact that the bond market is rallying today is a plus. If this ends up being a bear market, it will be one of the first ever that began when interest rates are down.
A higher IOER rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. While adjusting the IOER rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate.
The investor should be aware that even though safety of its principal and interest may be unquestioned, a long term bond could vary widely in market price in response to changes in interest rates.
I studied what happened in the bond and the stock markets during previous periods when the Fed stopped manipulating the bond market. In every single case, the moment the Fed announced that there would be a cessation of intervention, stocks declined and interest rates went up.
We live in a global market and money's fungible and hedge fund private equity is looking for momentum plays, and there ain't no momentum plays in bonds, right? When the interest rates were spiking up or down, well they never really spike down they do spike up though. Something's got to happen, there's got to be motion, the dice has to be rolling on the board, and if it's not then they're not going to play because they're not going to get the adrenaline rush from looking at... you know, money markets fund interest rates or bond interests or whatever. It's got to be sexy.
Stock price multiples are negatively correlated with real interest rates. As interest rates rise, the market multiple will fall.
If we are going to have a Fed, it should not fall into the tyranny of experts with the a fatal conceit that a few wise people can determine interest rates. Interest rates should be driven by the market, and people's time preference, and we see these boom-bust cycles.
Let's have honest interest rates. Let's let the free market set interest rates in that zone where supply of savings is matched up with demand for real borrowing for capital projects.
If you let interest rates be freed, be set by the free market, they would rise dramatically. There would be a lot of broken furniture on Wall Street. It needs to be broken. The back of the speculative bubble would be broken and we could slowly heal the financial system. That's what I think we need to do but it's never going to happen because there's trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and shovel $85 billion a month of liquidity into the market.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
When bond prices fall, interest rates soar, with painful consequences for all borrowers.
Some religious practitioners make absolutist claims for their beliefs: I've no interest in doing this, nor do I have any interest in converting people, which is doubtless a relief to anyone who has feared finding me on their doorstep asking if they'd like to know more about Odin.
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