Potential Downsides in Ultra-Easy Monetary Policy

The Fed’s implementation of monetary easing after the financial crisis, while intended to bolster a teetering economy, is instead leading us into a Pay-the-Piper scenario, says Brian Singer, head of the Dynamic Asset Allocations Strategies team at William Blair in a recent article for Barron’s. “We’ve now seen eight years of ultra-easy monetary policy, which we believe won’t end well,” he says. Singer recalls two other efforts that had precarious outcomes: The “oil shock monetization in the early 70s,” he argues, “did not prevent the Standard & Poor’s 500 from declining 50%.” Alan Greenspan’s lowering of interest rates (starting in […]

Jason Zweig on Why Interest Rates Matter

When shopping for sale items, it’s customary to look at the price tag and see how much an item has been “marked-down”. You’d rather browse the “30% off” rack than the racks with lower discounts. Why? Because it affects the item’s value. On a much more sophisticated level, stock values and interest rates have a similar relationship. In a recent Wall Street Journal article, Jason Zweig describes how interest rates are an important factor when determining the intrinsic value of investments (the current value of the cash they are likely to generate in the future). Here’s how it works: If […]

The Only Fed Voice that Matters – Listen to Yellen

James Grant of Grant’s Interest Rate Observer recently weighed in on Federal Monetary Policy in a Bloomberg Report video. Grant believes the Fed “conceives its principal work to be suppressing or distorting the free play of interest rates or prices.” Asked what the Fed should do or not do to make the prices rule, Grant said the Fed has missed its mark, explaining that it had six or seven years to orchestrate a return to normal interest rates but are now confronted with moving to restore a normal structure of interest rates. Grant opined: “what the Fed ought to do […]

Paulsen: Three Possible Economic Outcomes for the Markets

Jim Paulsen, chief investment strategist at Wells Capital Management, told CNBC last week that the current situation “lends itself to a market that’s vulnerable to kind of bouncing around a lot but not really going too far.” He thinks that ultimately, what the Fed does “is going to be determined by the economy” and he sees “three major outcomes possible: One is that the global and the U.S. economy just simply roll over here; that’s a very scary outcome” that would require a renewed focus on fiscal policy, but he “think[s] that’s a low-odds probability.” More likely in Paulsen’s view, […]

DoubleLine’s Gundlach Identifies Downward Pressures, Warns Against Fed Rate Hike

Jeffrey Gundlach, CEO of DoubleLine Capital, delivered a fairly grim assessment in a recent webcast, Financial Advisor reports. Characterizing the recent bump in stocks as a bear-market rally, Gundlach pointed to a combination of factors that will put downward pressure on markets, expressed concern about the impact a Fed rate increase would have, and described positive market sentiment as perplexing. He identified valuation as one problem: “The S&P charts look horrific,” he said, “when you take out outliers from mining and energy, the valuation levels are a little scary.” He also said equities are closely correlated with the price of […]