Nothing would derail the Fed’s great reflation/recovery experiment like higher interest rates. Several notable investors including David Einhorn (see Einhorn’s thoughts here) and Julian Robertson (see Robertson’s thoughts here), have expressed their concerns over the potential for higher interest rates. The great Richard Russell of the Dow Theory Letters has long feared a spike in interest rates. In a recent note he explained that the end of quantitative easing has bond investors worried over the future of interest rates. Russell believes higher rates are the next big move in the bond market:
“Older subscribers may remember that I said that the Fed could continue its “quantitative easing” (printing money) until the bond market says it can’t. Below is a daily chart of the 30-year Treasury bond. The bond market doesn’t like what it sees. I view the pattern on this chart as a huge, down-slanting head-and-shoulder top with the bond sitting right on support. The bond appears weak, and if support is violated, interest rates will be heading higher. And that’s the last thing the Fed wants at this time.”
Source: Dow Theory Letters
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.