US Fed policy looks different to long term investors

To judge by the jitters that have hit the markets lately, the effect of Federal Reserve moves to raise short-term interest rates is clear and simple- that higher rates are bad news for both stocks and bonds.
It’s as straightforward as that: When the cost of money goes up, business feels the pinch. So does the supply of funds available to bid for securities, and so do the animal spirits that set the mood of financial marketplaces around the world.
The rule is easy to remember, even as the effects of higher interest rates ricochet through the system in a bewildering variety of ways.
What’s the strange, ultra-sensitive connection between rising U.S. interest rates and stocks in emerging markets at the far corners of the world? Well, for one thing, higher rates cast a shadow on the so-called “carry trade,” the common practice of speculators who borrow in the money markets to finance purchases of such things as Chinese or Eastern European or Latin American stocks.
And so it occurred again- that from March 11 through to March 23, a stretch of a mere eight trading days leading up to and including the latest increase by the Fed in the overnight money rate, the MSCI Emerging Markets Index tumbled 6.4 percent.
The effect on more developed markets was similar, though less extreme. The Standard & Poor’s 500 Index, dominated by big U.S. stocks, fell 2.3 percent.
That’s not at all the sort of thing most conservative income- seeking investors have in mind when they venture into bonds. The damage can magnify many times over in the interest-rate futures markets and wherever else fast money trades in and out of bonds.

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