Interest rates Webinar-slides - 03-30-2017

1. Do Interest Rates Matter?
30 March 2017
War Room

2. War Room
Idea Generation
Contextual Training
Scenario Updates
HiddenLevers runs on SCENARIOS like Facebook runs on PHOTOS

3. The Skinny
Interest Rates 101
Impacts by Asset Class
Scenario: Rising Rates
Do Interest Rates Matter?
UPDATED

4. HiddenLevers
THE SKINNY

5. Interest Rates Update
sources: HiddenLevers, Barron’s, Motley Fool
Pro-business or Populist USA?
not
how many rate hikes in 2017?
No bond crash
US raising alone
Trump no dove

6. Rate Impacts – Let’s take a Look
See it on HiddenLevers

7. Interest Rates - Take Aways
US politics more
central to economy
than central bank
Inflation is the real boss
Bonds not necessarily at risk
Shape of rate
curve matters

8. HiddenLevers
INTEREST RATES 101

9. 101: Inflation Rules Rates
Sources: HiddenLevers, Motley Fool
Strong long-term correlation between CPI and interest rates.
ZIRP era is over -> Correlation resumes
Zero Interest Rates Era

10. 101: Shape of the Yield Curve Matters
sources: HiddenLevers, Cleveland Federal Reserve
When 3M/10Y spread is negative, recession follows
3M/10Y Spread
=
slope of yield
curve
GDP Growth:
Follows slope
of yield curve

11. 101: US Dollar rise + Rate Hikes
Sources: HiddenLevers, Bloomberg, CNN
Rate Hikes
Quantitative Easing Taper
US Dollar’s Rise mostly priced in

12. 101: New New Normal = Old Normal
Sources: HiddenLevers, MarketWatch
Interest Rates generally travel with GDP growth

13. 101: Fed Target Rates
Sources: HiddenLevers, Business Insider
Target Rates
2017: 1.25-1.5%
2018: 2.0-2.25%
Long Term: 3%

14. 101: (Really Really) Old Normal
Sources: HiddenLevers, Business Insider, ZeroHedge, NY Times
Notwithstanding Oil spikes, Interest Rates want to be at 4%
4%

15. HiddenLevers
IMPACTS BY ASSET CLASS

16. Asset Class: Bonds + Equities
Sources: HiddenLevers, Cammack Retirement, Investors Place
Rate hike
cycles do NOT
derail Equities
Bond Funds: New bonds at higher yields are enough to
offset price decline in old bonds.

17. Asset Class: Inflation Impacts Equities + Bonds
Sources: HiddenLevers , TIAA
Fed Rate Hikes + High Inflation = Negative Returns

18. HiddenLevers
SCENARIO: RISING RATES

19. SCENARIO: Need to account for Wage Inflation
sources: HiddenLevers
Rising Rates
Commodities Inflation
Wage Inflation
Driven by Growth
1994 Bond Crash
good
bad
ugly
historical

20. SCENARIO: Rising Rates
GOOD
growth
driven
BAD
wage
inflation
UGLY
commodities
inflation
12m T-bill
4.5%
S&P 500
-21%
12m T-bill
4%
S&P 500
-5%
12m T-bill
3%
S&P 500
+15%
$
S&P 500
1875
S&P 500
2250
S&P 500
2700

21. SCENARIO: Rising Rates
GOOD
growth
driven
BAD
wage
inflation
UGLY
commodities
inflation
12m T-bill
4.5%
10y
2.8%
12m T-bill
4%
10y
4%
12m T-bill
3%
10y
+5%
$
S&P 500
-21%
S&P 500
-5%
S&P 500
+15%

22. Rate Impacts – Let’s take a Look
See it on HiddenLevers

23. Take Aways
US politics more
central to economy
than central bank
Inflation is the real boss
Bonds not necessarily at risk
Shape of rate
curve matters