Tags: Intervention | new normal | fed | rates

Intervention the 'New Normal' as 'It's a Risky World Out There'

By    |   Monday, 08 Jun 2015 07:45 AM

Richard Kovacevich, the former Wells Fargo CEO, is often an industry spokesman, even though he is no longer CEO.

First he made the case that a rise in interest rates would remind home buyers that if they’re inclined to buy a house, they should move before rates rise, and they will remain at historically low rates.

Michelle Caruso-Cabrera then asked why market rates moved so much last week, and without hesitation, Kovacevich responded, “Because they’re manipulated, and they were unusually low. So when you finally realize that the Fed is going to change their monetary policy, or be forced to change it, we need to get to a market rate, and we’re not at a market rate today. It’s still being manipulated, and that’s why it’s very hard to determine what the rate should be.”

Evan Newmark asked a question this blog has been raising, whether the Fed “has waited way too long to actually normalize interest rates.”

Kovacevich went so far as to say, “I don’t think the Fed’s gotten it right over the last three years. The Fed has been making a huge mistake, the fat cats are enjoying record stock market prices, and the ordinary Americans get 10 basis points on their savings. That doesn’t give them a lot of discretionary income.”

He added that a 0.25% hike “will make no difference other than say, ‘We’re on our way now,” and he called on the Fed to stop growing its portfolio.

This writer has said and quoted others who have warned that if and when the Fed finally gives its signal, the market response may be disorderly. It is also good to keep in mind that the Fed intervened to save Wells Fargo and the other TBTF banks in 2008.

Next Kelly Evans asked the CNBC panel about the outlook for bond yields after Friday’s jobs report, and Mike Santoli called the response so far “modest,” so a Fed rate hike is largely “priced in.”

Newmark asked whether bond holders would look at recent performance and get out, but Santoli responded that those investors aren’t looking for performance and wouldn’t dump bonds unless something “scary” happened.

Newmark rejoined that investors should ask how much more they can make after a 33-year bull market in bonds. Tim Seymour called the recent move in 10-year notes “massive.”

This writer has questioned all along whether the Fed can deliver a smooth adjustment or whether the market will take over and respond with occasional spikes.

David Darst, and independent investment consultant, says that the market “isn’t hitting on all cylinders” now, and he agreed with Bill Griffeth that this sort of performance is “the new normal.”

Darst suggested that what the market needs is greater retail sales other than autos. He pointed to forecasts by Goldman Sachs and Morgan Stanley of growth of 2.5%-3% in the third and fourth quarters and said, “For that to happen people have to start spending, and they’re not spending.”

At a recent conference in Washington one of the presenters argued that even the current rate of consumer spending is unsustainable. If he was right, this suggests continued lagging performance and further delays in Fed action.

Finally, Peter Westaway, Chief European Economist at Vanguard, returned to the theme of increased volatility in bonds, because thin liquidity leads to strong responses to news.

He adds, “The key point is that we are in a low-return environment now .. fixed income is probably going to give you a 2%-3% return over the next ten years. I think it’s a risky world out there.”

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
Robert-Feinberg
This writer has said and quoted others who have warned that if and when the Fed finally gives its signal, the market response may be disorderly. It is also good to keep in mind that the Fed intervened to save Wells Fargo and the other TBTF banks in 2008.
Intervention, new normal, fed, rates
596
2015-45-08
Monday, 08 Jun 2015 07:45 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved