‘Too Damn Low’ Bond Yields Lead Tisch to Buy Stocks BegrudginglyNoah Buhayar
Call it a value investor’s lament.
More than five years after the Federal Reserve lowered interest rates almost to zero, Loews Corp. Chief Executive Officer Jim Tisch described his frustration with bond yields by borrowing language from a New York political campaign.
“They’re too damn low,” he said today at a conference, flipping a phrase popularized by the Rent Is Too Damn High Party. The 2.4 percent yield on 10-year Treasuries “just makes no sense to me,” said Tisch, 61.
The Fed’s efforts to help spur the U.S. economy have invited criticism from investors. Hedge-fund manager David Einhorn has compared the stimulus to eating jelly doughnuts, a habit that can threaten long-term health. Weston Hicks, the CEO of New York-based insurer and investment firm Alleghany Corp., last year likened the central bank to a medieval barber whose ill-advised prescription for every sickness was more bloodletting.
Banks have also chimed in. This week, executives from Wells Fargo & Co., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. cited persistent low yields as a challenge to their businesses.
Investors like New York-based Loews, a $17 billion holding company with operations in the insurance, hospitality and energy industries, have also had to contend with surging equity markets. With stock indexes at record highs, money managers seeking value are left with few options, Tisch said.
“We do have an equity team,” he said at the conference, held by Sanford C. Bernstein & Co. in New York. “They are constantly looking. They are finding things to buy, but they sort of buy them begrudgingly.”
Fed policy makers are watching progress toward their goal of full employment as they consider the timing of the first interest-rate increase since 2006. The central bank, led by Chair Janet Yellen, has said the benchmark rate is likely to stay low for a “considerable time” after it ends a bond-purchase program that’s set to wind down this year.
Tisch has previously used colorful language to call attention to the challenges the interest-rate policy creates for investors. Last year, he said that all bonds -- from Treasuries to corporate debt -- were so unattractive that they were competing in an “ugly contest.”
Loews’s insurance unit, CNA Financial Corp., still holds a majority of its $45 billion investment portfolio in fixed-income securities to back policyholder liabilities. To mitigate the effect of lower yields, Loews has turned to hedge-fund investments and sought deals in the municipal bond market to boost returns.
Tisch said today that CNA will benefit as yields rise.
“Interest rates will eventually move up once this panic into bonds is over,” he said.