James Kar

What You Can Do During a Slow Growth Recovery

Hi Old Trader:
The FOMC meeting language basically telling investors that the Fed would accommodate the economy and would keep rates low as long as possible. But this is what the Fed's planning but the global currency and commodities markets may not let the Fed has its way.

The Fed thought the fiscal stimulus along with the monetary policy would get the economy going. We know this fails so far. Now, the gov even talk about second stimulus. This no doubt will make global investors losing confidence in the US$. They may even think the US gov is engaging in reckless fiscal policies that will sink the dollar value. Thus, the US gov may have to offer higher rates to attract bond buyers. If China has its way about the global reserve currencies issue, the US$ may start to trend downward again. With higher commodities prices and lower US$, investors will demand higher rates before lending to the US government.
Remember now China starts to settle global trade in RMB, which in turns will reduce demand for US$. This would make the US$ even weaker. Once investors lose confidence in US$, the Fed has no choice but to raise interest rate even the Fed does not want to. What do you think?


On Jul 06 09:52 PM Old Trader wrote:

> Mr. Kar,
>
> Didn't the language of the last FOMC minutes indicate that rates
> will "remain low for an extended period of time", or words very close
> to that? Actually, good quality corp. debt is not the worst place
> to park some money for say, the next 9-12 months, maybe longer.<br/>
>
> Given that Biden 'fessed up to the fact the current administration
> totally missed how severe the downturn would turn out to be, and
> there's talk of the "next" stimulus plan, I don't see rates rising
> for some time, though obviously, at some future point, they will,
> as the Gov. tries to unwind the mess.
>
> donzelion; I agree with you on the quality dividend paying stock
> play, as well. Some of the healthcare stocks are good, and as RE
> Broker mentions, foreign telecoms work, too.
>
> Disclosure: Long JNJ, FTE

What You Can Do During a Slow Growth Recovery

Hi "Oldman": As the interest rate is as low as it is now, the interest rate cannot go much lower since the Fed already target the fed fund rate close to zero. The chance is higher for the rate to go up instead. As the interest rate goes up, bond price goes down. At this time, I would not put most investment in bond. May be you can consider dividend paying oil stocks like ConocoPhilips (COP) paying $1.88 dividend with the current yield at 4.60%. The stock pays you something while you are waiting for the recovery. Also, the stock will participate in market recovery plus giving you some inflation or USD depreciation. Hope this helps.