A Q1 Letter To Clients: Ben Bernanke On Interest Rates
April 7, 2015
by Dan Richards
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Every quarter since 2008, I have posted a template for a client letter. This letter can be used as a starting point to provide an overview of the period that just ended and thoughts looking forward.
This quarter’s letter addresses questions from clients about why interest rates are so low and when they are likely to rise. Use as much of the content below as is appropriate for you and customize the letter to reflect your views. Here are the components of this quarter’s letter:
- An overview of Q1 performance
- Perspectives from Ben Bernanke on interest rates and from Yale economist and Nobel laureate Robert Shiller on the risk of bonds
- Thoughts for the period ahead
A Quarter End Letter to My Clients:
The first quarter in review: Ben Bernanke on interest rates
Recent commentaries by former Federal Reserve Chair Ben Bernanke and Nobel laureate Robert Shiller answer some common questions from clients about interest rates and the risks of owning bonds.
But first, here is an overview of performance in the first quarter.
Profit recession for U.S. companies
In their local currencies, markets outside of the United States outperformed the American market in the first quarter. When converted to U.S. dollars. However, this outperformance was significantly reduced by the continued strength in the dollar against virtually every major currency.
| Q1 2015 Returns | U.S. | Europe | Emerging Markets | World Markets |
| In local currency | 1.4% | 11.7% | 5.0% | 2.9% |
| In US dollars | 1.4% | 3.6% | (2.1%) | 2.4% |
Source: MSCI – January 1 to March 31, 2015, including dividends
The rise in the dollar has been driven by the continued strength in the U.S. recovery compared to other advanced economies and by concerns about reduced growth forecasts for China and some other emerging markets. As a result, we’ve seen a “flight to safety” to the dollar by global investors as central banks in the rest of the world keep rates at record lows in an attempt to fuel economic growth, while the Federal Reserve continues to send signals about raising U.S. short-term interest rates later this year.
In stock markets, strong leadership by the European Central Bank improved the outlook for Europe’s economies. There was a general sense that accommodation would be reached with the anti-austerity government elected in Greece without the disruption that would follow a “Grexit” from the European Economic Union. As well, European multinationals have seen their competitiveness increase due to the fall in value of the euro. Consumers have benefited from the drop in oil prices since the middle of 2014, with the prospect of stronger consumer spending as a result.
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