Are Investors Ready for Higher Interest Rates?

If the economy keeps growing, it hastens the day when the Federal Reserve ends the era of 0% interest rates

By Ben Steverman

Data showing the U.S. economy is growing again has renewed the debate about where interest rates are headed—a question with big implications for both the economy and investors.

The U.S. gross domestic product report released Oct. 29 showed that the economy grew by 3.5% last quarter, a higher percentage than many were expecting, and fixed-income markets took it as a sign that a rate increase will happen sooner. Treasury prices fell after the release of the GDP figure, and the yield on 10-year U.S. Treasuries rose 0.08 points to 3.5%.

That’s still a historically low rate, reflecting the fact that the Federal Reserve is holding the short-term federal funds rate near zero in order to stimulate the economy. It’s the reason why yields on bank savings and money market accounts are so paltry.

Such low rates aren’t sustainable for long periods of time out of fear, among other things, that low rates can overheat the economy, spark inflation, or drastically devalue the U.S. dollar. “At some point the Fed needs to be thinking about tightening monetary policy,” says Villanova School of Business economics professor Victor Li. […]

Gene Marcial’s Stock Picks October 20, 2009, 7:23PM EST

Marcial: Jos. A Bank Is Dressed for Success

The menswear company’s stock is soaring as investors admire its strong expense controls, savvy promotions, robust sales, and comfortable cash cushion

By Gene Marcial

Who says menswear is boring and unappreciated? Not Jos. A. Bank Clothiers (JOSB), which designs, makes, and sells apparel for men and boys, from underwear to formal wear, through its 460 retail stores in 42 states, the Internet, and its nationwide catalog. And on Wall Street, Jos. A. Bank is sought after not only as a sartorial mainstay but also for the allure of its shares, which have soared from a 52-week low of 15 a share on Nov. 21, 2008, to 46 on Oct. 20. The last time it traded this high was in 2007.

“Sales of men’s clothing have been brisk, and Jos. A. Bank has done a terrific job selling them in a tough economic environment,” says William Rutherford, president of Rutherford Investment Management, which owns shares. Same-store sales are rising, with yearly total sales up about 11%, says Rutherford. He expects the stock to pile up more gains as sales and earnings continue to accelerate. […]

Monday’s Bank Stock Wrap
Markets Rebound After a Down Week

American Banker  |  Posted Tuesday, September 29, 2009

Banking stocks rebounded along with the rest of the market Monday from last week’s sharp selloff.

The KBW Bank Index closed up 2.84%, at 47.43.

The index slid about 3.29% last week as investors reacted to some negative financial reports concerning home sales and durable goods orders.

William D. Rutherford, who runs a private investment firm in Portland, Ore., described the lull as “healthy and constructive.”

“It’s good for the markets to have a little realism once in a while because we had such a run,” he said. Monday’s gains indicated “renewed optimism” about next month’s earnings reports. […]

BusinessWeek (Investing Section): September 23, 2009

http://www.businessweek.com/investor/content/sep2009/pi20090923_783858.htm

CEOs and the Pay-for-Performance Puzzle
Many shareholders and corporate boards agree that our system of paying CEOs is broken. How best to reward good corporate chiefs and discourage bad ones?

By Ben Steverman

A highly skilled CEO is hard to find. Highly paid CEOs, however, are everywhere you look.

For decades, corporate boards, watchdogs, regulators, and shareholders have argued over the best way to reward corporate leaders for a job well done, while not overpaying mediocre chief executives.

They might not be any closer to solving this pay-for-performance puzzle. But, the extent of the financial crisis and recession has made the problem clear.

The public and politicians have noticed the huge severance packages for executives resigning for poor performance, or the billions of dollars in bonuses awarded just months before financial firms collapsed. […]

Productivity gains in 2Q due mainly to cost cuts

http://news.yahoo.com/s/ap/20090902/ap_on_bi_ge/us_economy_18

By MARTIN CRUTSINGER, Ap Economics Writer

WASHINGTON – Companies managed to boost their workers’ productivity and their own profits in the spring mainly by slashing costs and capping their employees’ pay.

That was clear from revised government figures released Wednesday that provided further evidence that a tentative economic recovery has begun, while also reinforcing nagging concerns. Analysts worry the tight job market and lack of wage growth will depress incomes, limit further corporate profitability and forestall a pickup in all-important consumer spending.

Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pa., said companies that have shed workers and squeezed out savings won’t be able to show the big profit gains they did last quarter by relying on more big cuts. Having already made deep reductions, companies will need to find ways to generate more revenue.

“Profits have recovered nicely, but it’s more the way that they have recovered that gives people pause,” Schultz said. “The key is to somehow blend this cost-cutting with revenue growth.”

Productivity — the amount of output per hour of work — rose at an annual rate of 6.6 percent in the April-June quarter, the Labor Department said. That’s the largest advance since the summer of 2003. And it’s slightly better than the 6.4 percent productivity increase the government had estimated last month. […]