higher interest rates which assets do well

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higher interest rates which assets do well

Postby rm » Fri Aug 30, 2013 11:59 am

Hi
This is for my education purposes and maybe something I use for tactical asset allocation with a little bit of play money.

Which assets do well when interest rates start to jump up. Assumption is that you have bought all the assets listed below when interest rates were low

I would think bonds go down
I would think stocks in general (VTI) go down since rates are presumably increasing to constrict activity
Gold goes down since $ is more valuable
REIT go down

I would also think that stocks would be the first ones to stabalize or even increase because companies have the ability to increase prices in a high rate environment.

Thanks
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Re: higher interest rates which assets do well

Postby john94549 » Sat Aug 31, 2013 1:08 am

When interest rates go up, generally speaking, CD rates follow. However, this has not been true of late. Higher interest rates, vel non, do not equate to higher rates across the board. Accordingly, we must caution those who assumed caution that assume might, accordingly, render assumptions, accordingly, mere assumptions.

Interest rates will, accordingly, be in flux.

I so love "vel non", one of my favorite idiotic latin phrases.
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Re: higher interest rates which assets do well

Postby JoMoney » Sat Aug 31, 2013 2:38 am

I would also think that stocks would be the first ones to stabalize or even increase because companies have the ability to increase prices in a high rate environment.

You might think so, but prices tend to be sticky. Some types of products (i.e. name brand consumer goods) find it very difficult to raise prices, because consumers will substitute other cheaper products. Sometimes utility companies are regulated by the government and are prevented from raising prices.
Technology/Internet companies that don't have a lot of expenses tied to commodities or shipping/distribution costs MAY be in a situation where their profit margins aren't so tightly squeezed, but they're also one of the areas it's easier for consumers to cut back on.
Energy/oil will be needed to keep things moving if the economy really gets going.
But none of this is new information, the stock market tends to anticipate all this, and if we think it's missing something - it probably means it's anticipating other factors we're not considering. Any trade you make will have someone on the other end of the deal who believes something else.
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Re: higher interest rates which assets do well

Postby richard » Sat Aug 31, 2013 4:30 am

Interest rates might rise because the economy is getting stronger. Interest rates might rise because the Fed is tightening. These have different implications.

A stronger economy is likely good for stocks.

Bond values go down when rates rise, but the extra interest from higher rates, over time, more than makes up for the initial decrease.
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Re: higher interest rates which assets do well

Postby Sbashore » Sun Sep 01, 2013 11:29 am

Actually I remember times when a raise in interest rates, precipitated a stock rally. I remember other times when things went the opposite way. There are too many variables to try to predict anything in my opinion.
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Re: higher interest rates which assets do well

Postby magician » Sun Sep 01, 2013 11:57 am

rm wrote:I would also think that stocks would be the first ones to stabalize or even increase because companies have the ability to increase prices in a high rate environment.

If (nominal) rates increase because inflation increases, companies will be able to increase prices fairly easily.

If (nominal) rates increase because real rates increase and inflation stays about the same, it will be harder for companies to increase prices.
Simplify the complicated side; don't complify the simplicated side.
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Re: higher interest rates which assets do well

Postby Call_Me_Op » Sun Sep 01, 2013 12:03 pm

john94549 wrote: Accordingly, we must caution those who assumed caution that assume might, accordingly, render assumptions, accordingly, mere assumptions.


:?:
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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