Northwestern Mutual's John Schlifske On Interest Rates And The U.S. Economy

When asked about interest rates and the insurance industry, Northwestern Mutual's John Schlifske assured on Sunday's upcoming Wall Street Week broadcast, “Low interest rates are a headwind for an insurance company,” promising to pay a determinate amount of money in the future. Additionally, insurance companies' ability to generate the money is higher when interest rates are high. In fact, Schlifske explained, low interest rates have cost Northwestern Mutual $26 billion (or one year) of revenue over the last five years.

However, Schlifske assured he saw this coming and has prepared the company to weather these conditions. “[We] moved our company into a much more efficient structure: lower expenses, we geared our portfolio for ‘lower and longer,’ which is what we are set up for. And so, we are really well positioned to thrive in this economy,” he explained.

Was Not Raising Rates A Mistake?

When questioned about the Fed not raising rates, Schlifske said, “They’ve just got to get off the dime” and raise rates.

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Schlifske went on to expound why he thinks the United States is in a “lower for longer economic period” right now.

“All the money [...] all the stimulus is being pumped into the economy; it’s all going into asset prices.” In addition, since the crash, most of industrial production has been oil and gas, he noted, “Now that’s starting to back off. So, we don’t have a vibrant, strong economy. We have many things that Japan doesn’t have to argue against sort of a catastrophic depression,” he added.

“We have a net inflow of immigrants [...] so we don’t have an aging population; I think we have a more entrepreneurial economy than they do.”

Is A Japanese-Style Recession Ahead?

Ultimately, Schlifske ensured he is not worried about the United States being in for a Japanese-style recession. However, he does think “it’s hard to see rates going up.” He elaborated, “Even if Yellen raises rates on the short end, she is not going to be able to move the 10-year or the 30-year; there is too much demand for those.”

He continued, “You might see a little bit of an inversion in the yield curve, but it’s not going to be a parallel shift up.”

He concluded, adding that the “best of times” for the stock market are over. “I’m not a bear in the sense that I think we are headed for a 30 of 40 or 50 percent crash or anything like that [...] I just think the market is fully valued right now, and so we are a little nervous about it.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.