When interest rates rise..

[SpeedingBullet]

Which sectors would feel the pain? Which would gain from it?

I only know REITs would be adversely affected due to their high-debt nature.

Financials? Shipping? Or the only things positively affected are treasury bond yields?

 

[Hoo8899]

Banks ofcoz, those who will get hurt I guess would be those with high debts and bank loans.

 

[SpeedingBullet]

No doubt margin calls everywhere... What other sectors?

 

[Hoo8899]

I don't think I am capable to give a correct assessment on the impact of interest rate change to the respective sectors. My layman's view is that the impact will definitely much higher on those highly geared companies versus those not having much debts.

Next, you may also wanted to know if the change of interest rate affect the housing demands, if yes than ofcoz the construction sector would then be affected.

I can't tell much but what I know is that raising interest rate generally drag the market down, but is merely a temporary effect in my opinion. Perhaps TS or someone here would like to conduct a research and study on this based on the historical facts.

 

[Futureskid]

Moneylenders will gain from it.

 

[Dividends Warrior]

Well, it depends on how fast and how big the interest rate will rise.

Generally, property sector will be affected the most. People who bought a big house beyond their means will also be affected too.

People with huge cash savings will get more interests!!!

 

[Mecisteus]

There is a possibility that all sectors and market will do well in general. Remember why would interest rates rise? Because policymakers think that the economy is improving. When economy is doing well, monetary policies must be tighten to curb inflation.

If history serves as a good indicator and lesson to learn, rising interest rates have happened from 2003 to 2007.

 

[testing1234]

reits, yes but developers particularly with its gearing much higher than reits generally

 

[Majestic12]

It is very unlikely for the US to ever raise interest rates ever again. Structurally and fundamentally, the world's largest economy is in the doldrums. They are being Japan-ised.

What could cause interest rates to spike? A mass dumping of US Treasuries could ignite things. More likely it would be some unknown unknown.

More importantly, future generations are born into immediate debt. Most people don't give much of a thought about that because screw them, right?

 

[chopra]

maybe can shortlist those with low cash.

anyway not going to happen till ~2015 (i/r currently pegged to unemployment and inflation in usa)...still a long time...

 

[chopra]

There is a possibility that all sectors and market will do well in general. Remember why would interest rates rise? Because policymakers think that the economy is improving. When economy is doing well, monetary policies must be tighten to curb inflation.

If history serves as a good indicator and lesson to learn, rising interest rates have happened from 2003 to 2007.

It's unique though to have a bullish 2009-2012 equity market with perceived bad US unemployment rate amid a prolonged low interest environment.

Using your words, if we can base on historical examples, perhaps the global economy will crash amid this low interest rate environment to "flush out some bad debts" before both market and i/r recover upwards.

It's anyone's guess. We just have to react. Buy low sell high.

 

[SpinFire]

High interest rates will affect those who are highly leveraged. I can think of REITs and property developers. I'm not really sure about business models of banks, but would higher interest rates improve their net interest margin?

 

[chopra]

Did prop counters and REITS tumble down from 2003 to 2007?

 

[peterchan75]

Interest rate is a tool to control inflation. Higher interest to lower inflation.

 

[henrylbh]

Interest rate is a tool to control inflation. Higher interest to lower inflation.

Not a useful tool if the nation is cash rich.

 

[peterchan75]

Not a useful tool if the nation is cash rich.

Not sure if US was cash rich or not during the Reagan era, but Paul Volker did tamed inflation with high interest.

 

[Inexpressible]

Inflation down to 3.5 % this month if I am not wrong.

 

[chopra]

Interest rate is a tool to control inflation. Higher interest to lower inflation.

This is pretty much a chicken and egg thing.


Higher interest rate leads to higher inflation
or
Higher inflation leads to higher interest rate


Currently, Ben Bernanke is pegging interest rate to inflation & unemployment. So, I'd say it's the LATTER at least for these few years. And when the inflation is too high, Ben Bernanke might then lower the interest rate to adjust the inflation and that would be the FORMER.

 

[peterchan75]

Higher interest rate will lead to lower inflation. Inflation is the result and not the cause. E.g. the Fed can set interest rate at 2% but the Fed cannot set inflation at 2%.

 

[Mecisteus]

It's unique though to have a bullish 2009-2012 equity market with perceived bad US unemployment rate amid a prolonged low interest environment.

Using your words, if we can base on historical examples, perhaps the global economy will crash amid this low interest rate environment to "flush out some bad debts" before both market and i/r recover upwards.

It's anyone's guess. We just have to react. Buy low sell high.

firstly, the stock market is a leading indicator of the economy. so economy to crash is quite illogical just because you think we have bull runs in the recent years.

by the way, you call 2009-2011 a bull run? Dow returned 18.82%, 11.02% and 5.53% on these years. i would say they are just more of a recovery from a very low base of 2008. when the market tanked 34% in 2008, its quite likely the market will recover the following year as market goes in cycle.

im on the same opinion with Majestic that US interest rate might stay low for quite a long time. though it may sound extreme but my take is that there is a 20% chance of such an event happening. it has happened with Japan so might happen to US also.