RE:RE:Now Do You See?alvarez2 wrote:
Rate hikes have been in the cards for awhile........shouldn't be a big surprise. Market reaction may hurt with a short term outlook. Long term......who cares.
Nothing to do with market reaction at all and everything to do with the cost of money, debt servicing(variable rate debtors are gonna hurt) reduced value of cash flows etc or, in other words, financial performance which wasn't stellar in low interest rate times. What makes you think this will improve in an increasing rate environment? Asset values and interest rates are inversely related. Low rates are meant to increase asset values (stimulate the economy) because people seek returns/yield so it forces the markets higher (yield chasers), real estate higher, business "valuations" higher, and savers (those with cash or creditors if you will) get slaughtered. But the opposite holds true when rates increase. The cost of money drives everything and the system is designed to be this way. I'd talk about the bond market but that's a different animal and the Fed does not control it other than through artificial means such as money printing (QE which, is ending) on a massive scale and buying bonds in the open market to artificially suppress bond yields.
If I can buy a risk free treasury for X then WELL better give me XXXX for taking on more risk if they want me to lend to them. It's called competition for cash and risk v. reward. With variable rate debt they don't have a choice but to pay more to service that debt.
As I said, you will see.