Down goes the Dow

Say wha? wrote:

Uh, higher rates support higher stock prices? No one believes that.

Ghost of Igloi wrote:

say,

Sure there are. Some analysts have said that rising cost of capital is a sign of an improving economy. Of course the market has risen on multiple expansion and not earnings, so hard to justify that belief.

Igy

You are confused. An improving economy is not synonymous with higher stock prices, and vice versa. As the economy improves, rates are often increased to control inflation. But increased rates also makes debt notes more appealing which can result in decreased demand for stocks thus lowering their prices.

Econ,

True, but if you are holding debt at the time interest rates rise they will go down as well. An increase in interest rates of 1%, would result in about a 10% drop in principal on a 10 year note.

Igy

T Bill,

When you are in the Twilight Zone of investing, time has no boundaries.

Igy

Ghost of Igloi wrote:

Econ,

True, but if you are holding debt at the time interest rates rise they will go down as well. An increase in interest rates of 1%, would result in about a 10% drop in principal on a 10 year note.

Igy

Not if you hold it to maturity.

Yes. I bought some 5 year bank notes in 2010 at 4.5% and if I would trade them the principal fluctuates, but I just collected my payments every 6 months and got my original investment back at the end. Associated Bank-Green Bay, WI was the issuer.

Econ and topcat,

Good points. The problem with much of the corporate debt issued in the last five years comes covenant light. Default recovery rates have fallen with less protection for investors.

Igy

topcat wrote:

Yes it's all on the fed this week. If and when constant conjecture.

"If a person can be too smart for his own good, as the aphorism goes, portfolio manager John Hussman may be feeling the agony of high intelligence right about now....Hussman’s persistently poor performance is an object lesson in the futility of trying to outsmart the market, a temptation to which some very smart people succumb either through security selection or market timing."

From "Hussman's Returns, Like His Forecasts, Are Dismal"

Research Magazine

Gil,

Keep praying Hussman is wrong. Why do you think he causes so much angst in you and others? He picked the last two tops before 50% drops.

Just for you:

https://mobile.twitter.com/HussmanFunds/status/768085995900243968?p=v

Igy

No praying or angst necessary. Unless you believe "this time is different", he will almost certainly be wrong....again.

Gil,

OK. Best of luck.

Igy

Thanks for agreeing. Best to you too.

Gil,

I don't agree, but you are free to your opinion as do I. The Hussman article you quoted is two years old. As I showed one of his funds is Morningstar four star and top on YTD and one year. But I am not here to defend his investment record. I find his writings to be the most original and interesting commentary out there. Furthermore, Hussman has a record of weekly and monthly commentary that goes back to the early 1990s. He is not afraid to voice an opinion that runs counter to the mainstream. He admits to his errors and he does not begrudge those that profess buy and hold, or have opposing views.

Best of luck.

Igy

If you don't agree, then don't begin your post with "Ok."

And if you're going to criticize an article because of its publication date - which, by the way, doesn't affect the relevance of its content - then perhaps you should not reference articles that are anything but recent. Otherwise you risk being labeled a hypocrite.

Indeed Hussman has a long record of commentary. My point is that he has proven to be wrong far more often than he has been right. You accept his words at your own risk.

U.S. stock futures ping-ponged between small gains and losses Wednesday, suggesting a muted open for Wall Street as investors keep up their wait for the Federal Reserve's summer summit.

The data calendar is light, but the market will get an update on sales of existing homes last month.

Futures for the Dow Jones Industrial Average were up 7 points at 18,535.00, and S&P 500 futures edged up 1.6 point, or 0.1%, to 2,186.75. Futures on the Nasdaq-100 picked up 3.75 points, or 0.1%, to 4,820.75. Futures had earlier traded slightly in the red.

Stocks ended Tuesday's session a touch higher, bolstered by an upbeat report on new home sales in July. The S&P 500 rose 0.2%, while the Dow Jones Industrial Average gained 0.1%. After touching an intraday record high, the Nasdaq Composite closed up 0.3%.

But trading activity has been lackluster this week, with investors holding off until they have heard from Fed Chairwoman Janet Yellen at the central bank's retreat at Jackson Hole, Wyo., on Friday. Yellen's speech there will be closely watched for hints about U.S. monetary policy and what it says about the path of interest rates.

"Uncertainty has enveloped the global markets this week, with investor jitters intensifying as the lack of direction continues to send ominous warnings ahead of Friday's Jackson Hole gathering," said FXTM research analyst Lukman Otunuga in a note.

"Investors should keep diligent this week, as the increasing focus on Yellen's speech may present a threat of creating explosive levels of volatility, if market participants are left empty handed on U.S. rate-hike timings," he added.

Ghost of Igloi wrote:

Econ,

True, but if you are holding debt at the time interest rates rise they will go down as well. An increase in interest rates of 1%, would result in about a 10% drop in principal on a 10 year note.

Igy

No. The principal is unaffected. The market value of the bond drops but its principal and interest payments remain the same.

Another record! Woo hoo.

No K.

Ghost of Igloi wrote:

Econ and topcat,

Good points. The problem with much of the corporate debt issued in the last five years comes covenant light. Default recovery rates have fallen with less protection for investors.

Igy

That's a very small concern given the rate of defaults, especially among highly rated borrowers. But then that has really nothing to do with the original point, so I'm not sure why you brought it up.