Addressing Concerns of the Day
WHAT, IF ANYTHING, IS PREVENTING NEGATIVE INTEREST RATES?
Negative interest rates have become reality through much of the developed world outside of North America. Whatever the cause (and our October 3 posting two articles below makes the case that demographics are the culprit), is there any structural reason why it couldn't happen here? Despite the U.S. Federal Reserve's musing that it wants to maintain the sanctity of the "zero bound" (i.e. keep interest rates positive), this well supported article suggests that negative rates could easily become reality in North America too. Refinitiv, and the their partner Fathom Consulting, argue it's time to take the prospect seriously.
Date of Posting: November 4, 2019
Suitability Rating: 2 - The case is compellingly made, requiring a modest understanding and interest in financial concepts
WITHOUT MUCH FANFARE, THE YIELD CURVE "UN-INVERTS"
Kevin Flanagan, Head of Fixed Income Strategy for Wisdom Tree Investments, writes about the recent un-inversion of the bond yield curve. Owing to a media predisposition for negative news headlines, this closely watched recession indicator received broad-based news coverage (even outside of the traditional business news) when it inverted earlier in 2019. The un-inversion, not so much. Interestingly, like RBC, Mr. Flanagan holds the view that the U.S. economy will avoid recession, even using the same "base case" terminology that I and RBC have been using throughout most of this year. The article is short, easy to understand, and very much to the point.
Date of Posting: October 23, 2019
Suitability Rating: 1 - Straightforward and Easily Accessible
WILL INTEREST RATES MEANINGFULLY RISE WITHIN A GENERATION?
One recurrently topical theme in our weekly updates, as well as a question we consistently receive from clients, is what our team's expectation is for the direction of interest rates. Not surprisingly, owing to the tie between interest rates and the economy, we consider this question from a variety of angles on a nearly daily basis. However, taking a step back, and looking even beyond the multi-year economic cycle, demographics suggest we may be dealing with near zero rates for much longer than anyone ever expected. Perhaps a time frame measured in generations.
Date of Posting: October 3, 2019
Suitability Rating: 1 - Straightforward, and of Nearly Universal "Interest" to all Readers
THE FED CALLS TIME FOR A REALITY CHECK
In this reasonably accessible commentary, Sonal Desai, PhD of Franklin Templeton Investments, examines why it was necessary for the U.S. Federal Reserve to reign in runaway market expectations for future interest rate cuts. She paraphrases that "the message from the Fed is that there is no reason to panic, we are not on the verge of a recession, and there is no reason to expect massive further monetary easing." We at Scholte Wealth Management agree: growth has slowed and risks have risen - but imminent recession does not appear to be the "base case" moving forward.
Date of Posting: September 18, 2019
Suitability Rating: 1.5 - A Short Read with a Readily Apparent Message; Details May Require Some Basic Background Knowledge
IS A U.S. RECESSION INEVITABLE?
Brian Levitt and Talley Leger of Invesco Canada debate the likelihood of U.S. recession. As with any large organization - including RBC - differences of opinion are inevitable, and encouraging open debate is key to sound decision making. Invesco's conclusions are similar to ours - risk of recession has risen, but it is not inevitable. A Chinese trade resolution might quickly change the narrative.
Date of Posting: September 10, 2019
Suitability Rating: 2 - Slightly More In-Depth for Those With Interest