This is how the great twentieth century comedian and serial wisecracker, Groucho Marx, would begin every guest interview on his 1950s television quiz show, “You Bet Your Life!” If someone did make that magical utterance, sirens would sound and a stuffed duck with mustache and Groucho glasses would drop from the ceiling with a one-hundred dollar check in its mouth. For those looking for a little nostalgia, or those too young to remember Groucho, I’m attaching a YouTube clip (about 4 minutes and 30 seconds into it the contestant says the “secret”/magic word, but something other than a duck drops in).
Similar silliness has crept over the market in the past few days, and it has to do with media and punditry obsession over two other “magic” words…”considerable time.” You see, in past Fed pronouncements about when they might begin to raise interest rates, Dr. Yellen and Co. have used wording to the effect that they did not expect rates to move up for a considerable time after the end of Quantitative Easing. Well, QE is supposed to end in the next 45 days and someone or something has gotten them worried that the Fed might drop magic words considerable and time, indicating rates might go up sooner rather than later.
What’ the big deal?
Most fully functioning financial types (those who have not been living under a rock) are already expecting rates on the UST 10-year to move higher in the not-to-distant future…maybe to three or three and one-half percent. This would be normal in an improving economy. As I pointed out earlier in session 124 (What’s wrong with this picture?), the withdrawal of 75% of QE has not been the disaster many predicted, so why should a more normal interest rate picture typical of an improving economy be terrifying? The last time the S&P 500 traded at a 30 multiple (YTK) the 10-year U.S. Treasury was trading to yield over 6%. Is it possible we should welcome higher rates? The attached clip from CNBC’s “Closing Bell Exchange yesterday gives a good run down on the silliness. If you do watch, please note how CNBC co-anchor, Kelly Evans, tries to steer the conversation in a negative direction…she fails.
Regardless of the outcome of the Fed announcement, “considerable time” or no “considerable time”, media assertions that rising rates or language signaling as much, is a big deal or something to worry about, are overblown and ridiculous.
What do you think?
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