Rate Hikes
Around the world the BRIC countries are raising rates, China is being more aggressive with two bank reserve requirement increases in a month. But the US and EU have not because of the credit crunch. Recently Bernanke hinted inflation was a concern and rate hike maybe coming sooner rather than later. Short term yields spiked on the news. The ECB head expressed similar news a short time ago.
We are at a point in time where interest rates must come up. The world is not dealing with 4-5% inflation the government data is suggesting. Its much higher. That is why in Spain there are protest that is now affecting the supply chains of stores, and WILL impact the general economy.
Global economic growth is very much alive, but the Fed will have to make some really tough decisions. The Fed will have to raise rates. Food and energy costs are at a level where alternative are being introduced to the market, and will continue to do so even with rate hikes from the US. (The US saw 6% decline in gasoline usage during its busiest season, and Crude and gas prices only went UP!)
In this type of environment, NLY will be perceived as negative, despite its nice yield, as I indicated a few weeks back to lighten up because of the potential rate hikes. So becareful there. (Although I am expecting a dividend increase for this quarter.)
Some stocks for this environment:
PWR, IMO, is still a solid play due to the alternative energy push. And should do well in whatever economic environment, so long as it is not a severe recession (which we are not in).
AGO is also interesting in this environment. I am a bit cautious as to what the banks and IBs have to say within the next few weeks, and may drag AGO down. But the credit markets stabalized, and business is good, taking market share. So long as another IB does not go under, AGO should rise from here especially since they guided to a worst case scenario last quarter.
