Rate hike hype

TGregg · May 4, 2004

Quote from FireWalker:

But the Fed is an independent agency unaffected by politics.

That's a joke, right? You forgot some punctuation like

inandlong · May 4, 2004

Quote from FireWalker:

But the Fed is an independent agency unaffected by politics.

That's pretty funny, Fire'.

Whether or not rates are raised this year or next.... in my very unlearned and merely empirical opinion, when the Fed starts raising rates it will be slowly and cautiously. As such, if 5% money were cheap, and 4% were, and 3%.... etc., then as far as the subject of rates goes, business should continue to grow until money is no longer cheap. We've a good 2-3 years, at least, until the cost of money becomes prohibitive to growth.

Therefore, rate hikes should not be worrisome near and intermediate term.

FireWalker · May 4, 2004

Yes... yes... forgot the punctuation...

Osman · May 5, 2004

the wording they used today set up the markets for eventual incremental rate hikes. No 50basis point hikes in sight or anythng extreme.

harrytrader · May 5, 2004

A rate is cheap or not only relatively to true inflation; since inflation stats has been inflated in the 80s to justify high rates at that time: this was revealed ... during the time they wanted to lower rate. I guess when they need to rake it up again they would pretend that inflation stats have been underestimated.

Quote from inandlong:

Dr. Irwin Kellner, CBSMarketWatch economist and Weller professor at Hofstra, concludes that rate hikes are eminent. Brilliant!

But what gets me is his parting salutation...
As I recall, money has been considered cheap from about 5% all the way down to the present rate. Unless the Fed raises rates to 6% this summer or fall.... I'd say money will continue to be relatively cheap for the next 2-3 years minimum. That presumes a 1/4 point increase in rates on average per quarter.

Comments?

waggie945 · May 5, 2004

Most regional banks will make money in a rising rate environment, and 40% of major money center banks make money in a rising rate environment.

darkhorse · May 5, 2004

Quote from waggie945:

Most regional banks will make money in a rising rate environment, and 40% of major money center banks make money in a rising rate environment.

Based on what? I hear bad statistics are up 6.2% this year, that must be one of them.

If rising rates tip a critical mass of overleveraged consumers into default, regional banks will get hurt.

If rising rates seize up the corporate debt market, create a duration mismatch, or start a chain reaction meltdown in reverse carry trades, the major money center banks will get hurt.

There are way too many variables in a "rising rate" environment to make a prediction that vague.

DVB · May 5, 2004

Quote from waggie945:

Most regional banks will make money in a rising rate environment, and 40% of major money center banks make money in a rising rate environment.

It depends on the duration of assets vs. liabilities. There are some financial institutions out there that are playing games with a steep yield curve and hedge with derivatives (short Treasuries).

DVB

newbunch · May 5, 2004

Most regional banks will make money in a rising rate environment, and 40% of major money center banks make money in a rising rate environment.
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Based on what? I hear bad statistics are up 6.2% this year, that must be one of them.

Oh, people can come up with statistics to prove anything. 14% of people know that. - Homer Simpson

DVB · May 5, 2004

I went back to 1971 to calculate average SP500 returns during interest rate cycles. Here is what I found: average annualized SP500 return during the Fed tightening cycles was â1.46%, when it was +14.35% during the expansionary cycles.

DVB