Van Konynenburg: Volatility Is Our Friend

LOS ANGELES—“I think volatility is our friend,” asserted Michael Van Konynenburg at the Allen Matkins View from the Top conference earlier this week. Van Konynenburg opened the conference with an economic update, where he talked about the recent volatility in the market and the Fed's decision not to raise interest rates. He explained that some volatility is good for the economy because it moderates growth and helps maintain balance.

However, when really diving into some of the volatility issues we have seen over the past 30 days, especially in the Chinese market, Van Konynenburg said that the volatility reported was exaggerated. “We think that the volatility has been exaggerated by the fact that this happened in late August and by the fact the China tends to be opaque,” he said, adding that the ability to take risk is much less today under Dodd Frank.

There has also been concern over the decline in the Chinese markets, but Van Konynenburg notes that over a trailing 12-month basis, the Chinese markets are still up 35%. As a result of some of this volatility in other markets, though, the dollar is now king, and we are seeing an influx of foreign investors coming to the US to invest.

Van Konynenburg also touched on the Fed's decision to leave interest rates at historic lows. In his opinion, the Fed should raise interest rates. “It was eight years ago this month that the Fed started lowering rates,” he said. “In most cycles, the Fed starts lowering rates and seven years later we are back to full rates. This has been eight years of Fed easing. Does this all end in a major asset bubble because the Fed is so late to the game?” A month ago, there was an 80% likelihood that the Fed would increase rates by the end of the year, but after their recent decision, there is only a 50% possibility that rates will rise by the end of the year. Although, he did add that once rates start to climb, “they move very fast.”

Van Konynenburg, overall, had a positive view of the economy, saying that in many ways, like our reliance on CMBS, growth trajectory and credit specs, we are in 2004. He continues to be confident and bullish on the market.