Wow–again. Rates are tumbling again and are trading in around 1.65% (on the 10 year). Stock futures are down more than 1%.
I think we can officially term this ‘a race to the bottom’ on a global basis–everybody cutting rates–this may not end well.
For the newer investors you can be certain if we get some big downdrafts in commons stocks and interest rates that preferred stocks and baby bonds will follow. Logically they go up with lower interest rates, but when common stocks fall hard it will drag income issues with it.
On Monday we saw income issues fall, but nothing dramatic. Today again we may see them fall, but I don’t think it will be anything too bad–10 or 15 cents on the average share.
The key on common stocks and also income issues is to have sell offs of an orderly fashion thus creating some bargains over the course of days or weeks.
The key unknown–who out there is being crushed with the move in interest rates? Where is the unknown massive bankruptcy that sends the globe into a tailspin? The big derivative players–Wells Fargo, Bank of New York, Morgan Stanley, HSBC, Bank of America, Citibank and JPMorgan better have their act together. Remember that there are $100’s of trillions of derivatives out there and these require multiple parties–counterparties and if 1 of them bet big on rising interest rates we could see some dominos tumble.
As always we watch—I will be doing no selling, probably no buying right now.