An Interest-ing time for the US and a Seminal Moment for Apple Inc.

I woke up yesterday morning to the faint tones of the TV and my attention was drawn to the CBS news, which has a slot at 5 a.m. in the UK. (For the record I am quite the insomniac and with my wife also away this week, the TV stays on all night…for some reason I sleep better with it on.)

The main reason the news caught my attention, was that it was likely that as the US markets opened yesterday, there was going to be an announcement from the Federal Reserve where interest rates would be on the agenda with an increase in the cost of borrowing…the first rate hike since 2006.

Whilst I am sure the markets adjusted for an increase in interest rates some while ago, there were some interesting statistics which caught my attention during the morning’s news slot; two in particular are worthy of comment.

The first statistic is that 14 per cent of financial professionals have NO experience of a rate rise! Now I accept that I am getting to a ripe age for the industry now, but when I bought my first house in the late 80’s, interest rates in the UK had gone from 7.5% in 1988 to 15% in the autumn of 1989…how would the modern “banker” cope now?

It is this exact statistic from the late 80’s that also had me shaking my head at 5 a.m. yesterday morning…whilst interest rate rises are certainly worthy of note after nine years, there is a risk of headlines for the sake of it. I cannot second guess the future actions of the Fed, or the reaction from the global markets, however the initial interest rate rises have been low and all communications from the Fed have “ fallen over themselves” to confirm that any lift in rates will be SLOW and managed over a long(ish) period of time, so that impact will not only be low, but managed well.

Watch this space I accept, but if we learnt anything from the banking crisis, I think it was how to manage interest rates! I, for one, will be watching what the global reaction to this situation will be; as much for interest in the markets as anything.

The second statistic that caught my attention relates to Apple and the iPhone…..all those years ago in 2006, there were no iPhones! For those who know me, I am certainly not renowned for my IT skills, but I do use an iPhone daily as well as an iPad to catch up on affairs in the world, of an evening. If you go back, to what in historical terms is a second in time, it seems extraordinary that there was a time when iPhones did not exist…let alone that this was just nine years ago!

Just as interesting was the news that the price of Apple shares have fallen, with the suggestion that they are “peak iPhone” and may be levelling off in terms of market share. Personally I find this suggestion debatable, and the jury still seems to be out on the ultimate impact of the share price…but again, worthy of a watching brief!

So where am I heading with this? Well…if we take the last nine years, the change in both financial markets and technology has been astonishing and we are maybe at the start of another phase in their evolution…I am not an economist, or financial guru, but it appears that there are some situations in play which will be interesting to watch over the next nine years!

Written by:

Paul Swindale
Senior Manager, Abacus Trust Company Limited