With all the concern about a rate hike by the Federal Reserve Board, we turned to our resident bond and interest-rate experts for insights on probable Fed actions. With the economy in a sustained drive, many national commentators expect Fed chief Alan Greenspan to hike rates this year. But local money managers seem dubious that Greenspan will raise rates much.
Greenspan is facing a world economy that is shaky in Asia and hardly robust in Europe, said Ken Funsten, president of the $150 million-in-assets Funsten Asset Management Co. in Marina del Rey, which invests in distressed securities, mostly bonds.
"Just because we are the only strong economy in the world, you might not want to slow us down. If we aren't the engine that pulls the train, then who will be?" asked Funsten.
The inflation hawks at the Fed are on the warpath, said Funsten, so Greenspan might allow a small rate increase this year, "but not enough to hurt the long-term picture," which remains one of low inflation and interest rates.
At Flaherty & Crumrine Inc. in Pasadena, analyst Carl Johns is closely watching industrial capacity, along with other indicators. "This is an economy working on all eight cylinders," said Johns.
Also in Pasadena, Fred Astman, senior portfolio manager for First Wilshire Securities Inc., predicts that the Fed will stay the course. "I don't think they can raise rates with a declining stock market (as of April 27). Then you have the Asian situation. Greenspan doesn't want to destroy the whole world; it's already half destroyed (in terms of Asian equity values)."
Al Frank, editor of The Prudent Speculator newsletter in Santa Monica, said, "I don't think they will raise rates. The leaked announcement that they may raise them has probably done the work (of cooling off the market and economy). I think long-term rates may go down. The inflation rate is between 1 percent and 2 percent, and real interest rates should be about 3 percent above that. But real rates on long-term government bonds are stubbornly higher; around 6.5 percent," noted Frank, meaning long-term rates could come down a percent or so.
Kit Jennings, managing director of the eight-person West Los Angeles corporate finance office of Cruttenden Roth Inc., is jumping ship to join Freidman Billings Ramsey & Co., according to Cruttendon Roth Chairman Byron Roth. Jennings will set up a Los Angeles office for Arlington, Va.-based Freidman Billings, known for its work in financial industry underwriting and mergers, Roth said. Jennings couldn't be reached for comment.
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