Sasha Cekerevac: We all are quite aware that the economic recovery has been less than stellar. One area of serious concern—which I alerted my readers of months ago—is the upcoming rise in interest rates.
This is not a new topic for my long-time readers; I began warning readers to get out of long-term bonds when I issued my forecast months ago that interest rates were set to rise, even if the Federal Reserve didn’t start hiking them up immediately.
This is now starting to hit home, as outflows from U.S. mutual funds that specialize in bonds and exchange-traded funds (ETFs) that invest in securities tied to interest rates are increasing. According to TrimTabs, so far for the month of August, $19.7 billion has been pulled out of U.S. bond mutual funds and ETFs. That is already greater than the total for July, when $14.8 billion was pulled out of these investments. (Source: TrimTabs web site, August 19, 2013.)
This is causing interest rates to continue rising, and all of this has occurred before the Federal Reserve has even begun adjusting its monetary policy. As I’ve stated many times, people are under-estimating the impact of the upcoming policy changes, and higher interest rates are here to stay.
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With 10-year interest rates now above 2.84%, I believe this will begin to have an impact on the economic recovery in several areas.
Obviously, the economic recovery has been primarily driven by two sectors: automotives and housing. Both sectors are firing on all cylinders. Capacity utilization is through the roof for car factories, as car sales went from 10.4 million in the trough of 2009 to an annualized rate of 15.8 million for 2013. (Source: “America’s Car Factories,” Wall Street Journal, August 17, 2013.)
The issue, if interest rates continue rising, is that this could start to reduce the positive growth in these industries, slowing the economic recovery.(...)Click here to continue reading the original ETFDailyNews.com article: $19.7 Billion Pulled Out Of U.S. Bond ETFs and Mutual Funds In August MTDYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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