Friday, 23 August 2013
How the Fed could cause another 1987 crash
“I sat down this week with one of the most experienced bond market gurus I know. When I asked him for his advice, he first suggested — only half jokingly — ‘panic.’ His second bit of advice? Keep calm and carry on. His wife just bought him a large ‘Keep Calm and Carry On’ poster and had it framed. He’s going to take it into his office and hang it ‘where all the traders on our bond desk can see it.’ We are, he believes, in an era of rising interest rates, and they’ll continue to rise much further than most people realize.”
MK note: Above and beyond what the market delivers in terms of higher interest rates, let’s not forget that we are bumping up against another fiscal showdown in Congress — a confrontation that could further roil interest rates. In the last go-around (August, 2011), the end result was a Standard & Poor’s sovereign debt downgrade. Today the ten year treasury went to 2.90% — up 55% year to date. There is much to be concerned about as we head out of the summer doldrums and into the beginning of the fall investment season.