Market Beat: It’s still about growth |

Market Beat: It’s still about growth

David Vomund

Remember how almost everyone (I included) was predicting higher interest rates in 2014? After all, the economy was improving and the Fed was tapering on route to ending its quantitative easing program.

So much for conventional wisdom. The ten-year Treasury yield now sits at 2.29 percent, a level last seen in the spring of 2013. Why the lower rates?

Interest rates and stock prices have fallen for the same reason: a global economic slowdown. Last week I talked about the global slowdown and cited the weakness in junk bonds as proof.

Another indication of slowing is the fall in commodity prices. Gold has lost 9 percent in three months and oil sits at $85.

The IMF joined those taking a bit off their earlier GDP forecasts citing fundamental problems in Europe and Japan — debt, unemployment, lower fertility rates — that cannot be quickly nor easily solved.

The one bright spot is the U.S. economy, which is expected to grow about 3 percent next year. Unfortunately, exports could be a headwind. Countries are buying few goods and the rising dollar makes our exports more expensive.

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Last week we learned that a month ago the Fed was so concerned about the rising dollar and weakness in Europe that they lowered their GDP outlook, pretty much eliminating the chance that rates will rise sooner than had been expected (next summer).

They, too, see falling commodity prices and laughably low government bond rates in Germany, Italy and elsewhere as signs that the global economy is not healthy despite all the stimulus and monetary accommodation since the financial crisis.

A slow-growing economy makes fixed-income securities more attractive, especially since rates won't rise anytime soon.

Some of my favorites are: Renaissance Re Preferred E, an investment-grade preferred that pays qualified dividends and yields 6.1 percent. For more yield I like Saul Centers Preferred C, which yields 6.7 percent.

Finally, my largest holding is HSBC Adjustable Rate Series D Preferred. This investment-grade security is tied to the Treasury market, so is far more attractive than other adjustable securities that are tied to Libor.

It currently pays 4.5 percent and its dividend will increase when Treasury rates rise.

David Vomund is an Incline Village-based fee-only money manager. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.