Salient to Investors:

  • The last time consumer-price increases were slowing before the Fed started raising rates was in 1994, when Treasuries lost 3.3% and Greenspan doubled the benchmark rate to 6% despite inflation being at a 7-yr low of 2.5%.
  • Gary Pollack at Deutsche Bank said the critical example for the markets is 1994, and that is what we all fear.
  • Futures indicate the Fed will start raising short-term rates in July 2015 to 0.76% by the end of that year.
  • Margaret Kerins at Bank of Montreal said the Fed does not care about bond guys losing some money so when it’s time to tighten they will do exactly that.
  • Julian Robertson at Tiger Management said the bubble in bonds will end in a very bad way.
  • Leon Cooperman at Omega Advisors says bonds are very overvalued, and Howard Marks at Oaktree Capital says interest rates are unnaturally low.
  • The iShares 20+ Year Treasury Bond ETF just had its largest weekly redemption since inception in 2002.
  • Cathy Roy at Calvert Investments says bond investors have little reason to worry the Fed will opt for a more aggressive stance on rates because inflation will stay low without faster wage growth to get Americans to boost spending – if anything, we will see talk of raising rates pushed into 2016.
  •  Hourly earnings have risen an average 2% over the past 5 years, the weakest in any expansion since at least the 1960s.
  • Robert Tipp at Prudential Financial said faster growth in 2015 will prod the Fed into moving sooner to stay ahead of the curve – by mid-2015 we may have passed the tipping point.
  • Economists project 3% growth in the US in 2015.

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