Markets stabilized yesterday and are rallying today as the Fed did what they have done now for roughly nine years … NOT raise interest rates. The Fed Funds target of 0-.25% remains where it has been since the fall of 2008, with market pundits – many of whom practically guaranteed a March increase, and then a June increase – now looking towards the inevitable September increase.
At The Bahnsen Group, we assign a 30% probability that the Fed raises a quarter of a point in September, much lower odds than consensus. In fact, we assign only a 60% chance that they raise at all this year.
The timing of the first quarter point hike, whether it be September, October, December, or 2016, is truly not that important. At whatever point the “gradual” increases commence, we believe the bigger impact will come if and when rates rise to the “sudden” phase of rate increases (to borrow the paradigm that Jeffrey Gundlach uses).
Along the way, we are mystified by market participants who believe this is GOOD for markets to delay the inevitable, thereby guaranteeing a more sudden paradigm in the future. Earlier = more gradual to come; later = more sudden to come. No matter what short-term market volatility this whole discussion creates (today it is upside volatility; another day it will be the opposite), we are focused on our five beliefs about this whole crazy deal that is rate abnormalization seven years after a crisis with unemployment at 5.5%:

  1. Always expect them to be late, not early.
  2. Increases from present levels are surely inevitable.
  3. Be wary of the asset classes most susceptible to frothy behavior in the present rate environment.
  4. Look for the easy money to eventually become inflationary and force as policy reversal that becomes recessionary.
  5. Take advantage of that when it happens.

In the meantime, we await September, and look forward to the [dollar] or [Europe] or [GDP] or [Q1 weather] reasons that a hike is delayed yet again. Or will we finally return on a path to normalcy in September? We give it a 30% chance.
With regards,
DLB Signature
David L. Bahnsen, CFP®, CIMA®
Managing Director/Partner
Chief Investment Officer
The Bahnsen Group, HighTower

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The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

David L. Bahnsen


David is a frequent guest on CNBC, Bloomberg, and Fox Business and is a regular contributor to National Review and Forbes. David serves on the Board of Directors for the National Review Institute and is a founding Trustee for Pacifica Christian High School of Orange County.

He is the author of the books, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It (Post Hill Press), The Case for Dividend Growth: Investing in a Post-Crisis World (Post Hill Press) and his latest, Elizabeth Warren: How Her Presidency Would Destroy the Middle Class and the American Dream (2020).


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