Is it the Elections or Interest Rates?


QUESTION: Dear Marty,
Thanks for the continuous enlightening blogs about increasing interest rates and its effects on EM’s and others.
Today on Bloomberg , they were discussing that the earlier 60:40 Equity bond correlation is breaking down and now it’s 100:0 i.e. both go up and down together.
If I understand your view correctly , the increasing interest rates is a death knell for the Bond trade/Sovereign Debt but totally opposite for the Equity mkt which might surge as capital flees to Private assets i.e Equity.
Would you care to comment please ?
Thanks again for all that you do and the fresh perspective you provide.
Best Regards,
US
ANSWER: They are misreading the impact of interest rates. It is really a political impact at this time and as we head into the week of 11/05, there is a rising concern because the Gallup Poll shows that the Democrats may take back the House and them everyone assumed they will do everything in their power to overturn everything Trump has done. So international capital is deeply concerned about the Democrats right now.

We are still in this consolidation transition period. Capital is trying to figure out the future and it is very confusing. This analysis you refer to is myopic at best. They ignore worldwide concerns and focus only on domestic issues. Interest rates have been rising since the 4th quarter of 2015. The decline has NOTHING to do with interest rates. They just have to blame something.

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