Is this the End of an Era?

Westpac Bank

Yesterday, the ASX 200 took a dive. The big four banks dragged the market down almost 1% to 5,674 points.

Westpac Banking Corp [ASX:WBC] and ANZ Banking Corp [ASX:ANZ] led the dive, dropping 1.32% and 1.59% respectively.

Google finance graph showing ANz and Westpac ASX performance

Source: Google Finance

But it’s not the banking sector investors are uneasy about. According to The Sydney Morning Herald, the big investors are also worried about happenings in the bond market. Head of JPMorgan Chase & Co. [NYSE:JPM], Jamie Dimon, even thinks we could be approaching the end of an era.

As reported by the SMH (emphasis is mine):

‘…Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.

 

“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris… “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”

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While it might be the end of cheap cash in the US, Aussies likely won’t see higher interest rates in the short term.

In his most recent monetary policy statement, Philip Lowe, head of the Reserve Bank of Australia, told the press:

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

The Australian Financial Review condensed Lowe’s speech to the following: ‘…the Australian economy is plodding along, inflationary pressures remain feeble, so there’s absolutely no reason to lift Australian interest rates any time soon.

My advice? Don’t worry too much about interest rates and the end of monetary easing. Instead, focus on finding great businesses and buying them for less than their worth.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

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