Author: George Yacik

Yellen's Gaffe

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Is Janet Yellen suddenly signaling an imminent rise in U.S. interest rates?

At a conference in Washington Wednesday sponsored by the Institute for New Economic Thinking, in an answer to a question from co-panelist Christine Lagarde, Yellen said:

"I would highlight that equity-market valuations at this point generally are quite high. Now, they're not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there."

The Federal Reserve chair also had something to say about interest rates. "We could see a sharp jump in long-term rates" after the Fed starts to normalize – i.e., raise – interest rates, she said.

Her words had the desired effect, if indeed that was her desire. Stock prices dropped around the globe, as did bond prices, driving yields sharply higher. The yield on the 10-year German government bund jumped as high as 0.78%, its highest level in more than five months and up from just 0.08% only three weeks ago. The yield on the 10-year U.S. Treasury note rose above 2.20%, its highest level in two months and up more than 35 basis points in the past month. Continue reading "Yellen's Gaffe" →

The Kangaroo Economy

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


One of my favorite Abbott & Costello gags was when Bud cheated Lou out of a winning poker hand by claiming he had a rare "kangaroo straight," meaning he had a 2-4-6-8-10 run, all different suits, while gullible Lou "only" had two pair (watch it on YouTube).

On Wednesday we got another chapter in the "kangaroo economy." The Commerce Department reported that U.S. GDP grew only 0.2% at an annualized rate in the first quarter of the year. That was down from 2.2% in the previous quarter and well off the 5.0% and 4.6% paces, respectively, of the two quarters before that. But it was in line with the first quarter of 2014's drop of 2.1%. Continue reading "The Kangaroo Economy" →

Fed Has Plenty of Excuses Not To Do Anything Soon

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


If you're among the vanishing minority of people who still think the Federal Reserve is going to start raising interest rates in June, the latest reports on the U.S. economy and events in Europe and China should disabuse you of that farfetched notion.

The proportion of economists predicting the Fed will wait until September to raise rates rose to 70% in an April 3-9 survey, more than double the figure from the previous month. That ratio has likely gotten even wider following the news of the past week, although I think it will be well after September before the Fed starts "normalizing" monetary policy.

Let's look at the U.S. economy first, where indicators continue to come in soft. Continue reading "Fed Has Plenty of Excuses Not To Do Anything Soon" →

Dude, Where's My IRA?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The experts still tell us we should allocate our retirement portfolio to 60% stocks, 40% bonds, give or take, depending on your age.

But how does a sensible investor do that in this era of zero percent interest rates? Do bonds really have a place in your portfolio anymore? It's a reasonable question to ask.

If you put 40% of your money in safe (i.e. U.S. Treasury) bonds that are unlikely to default, it's essentially dead money, unless you're okay with earning less than 2% a year over the next 10 years.

If you want to earn more than that, you'll have to go way out on the risk curve. And if you're going to do that, you're probably better off putting your money in blue-chip equities or ETFs that pay high dividends. They're arguably safer than junk bonds, and the dividends will cushion your portfolio if stock prices go down.

But then there goes your diversification. You'll have 100% of your portfolio in equities. What happens when the stock market finally corrects? Will your bond portfolio save you? Continue reading "Dude, Where's My IRA?" →

Jobs Report Says No Rate Increase This Year

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Friday’s jobs report was the final nail in the coffin for an interest rate increase in 2015.

I know I shouldn’t get carried away by one statistic, especially this early into the year. The nonfarm payrolls report is only one number – an important number, for sure, but still only one number – so one shouldn’t base his entire opinion on it. And I’m not. But the lackluster figure was just the latest evidence of just how weak the U.S. economy has gotten over the last several months and merely confirms the trend – with an exclamation point.

The Labor Department said nonfarm payrolls grew by only 126,000 in March, the smallest gain since December 2013. To add insult to injury, February’s increase was revised downward by more than 30,000 to 264,000. That brought down the average monthly gain in the first Continue reading "Jobs Report Says No Rate Increase This Year" →