business

Q&A: Why rising interest rates are shaking financial markets

6 Comments
By STAN CHOE

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There's the mad scientist inventor again! He invented the short-butterfly-superstraddle option technique. But really, I think everyone knows that higher interest rates hinder stocks.

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Interesting that interest rates were anchored at almost zero for 7 years of the previous president but have been raised 3 times just this year.

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The market has risen for ten consecutive years (80% under Obama). It was due for a correction.

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@Blacklabel

Interesting that interest rates were anchored at almost zero for 7 years of the previous president but have been raised 3 times just this year.

A big reason is that the current president is stimulating an already stimulated economy, and that's not including his grand infrastructure spending plans. Higher rates are needed to cool things down.

His predecessor, by contrast, was tasked for generating a recovery followed the worst economic meltdown in living memory. The near zero rates and other stimulus did the trick, as the US grew steadily while Europe was mired in a currency crisis and Japan in prolonged stagnation.

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The Fed also raised rates too quickly 11 years ago to stop housing which caused the Great Recession. A slower approach and there would have only been a minor financial crisis instead of the banking apocalypse we got. The credit market isn't nearly as overheated now but the economic isn't nearly as strong as the Fed chief seems to think.

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A slower approach and there would have only been a minor financial crisis instead of the banking apocalypse we got. 

Mortgage rates only edged up slightly during those couple of years of Fed FFR hikes. Anyway, Wall St. had already started loading up on the massive amount of poisonous mortgage-backed securities in a quest for quick easy profits, which that had little to do with the Fed actions, since the lightly regulated sub prime lenders were outside of the Federal Reserve System. Some sub prime loans were 0%!

Nearly all Wall St. was on the brink of bankruptcy until the bailouts. The Fed's benchmark interest rate played hardly any role in this.

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