Traders are addicted to cheap money: Expert

Fitz-Gerald Group Chief Investment Officer Keith Fitz-Gerald joins Yahoo Finance's Akiko Fujita to break down how the markets are reacting to the Fed's decision to hold interest rates at near-zero.

Video Transcript

AKIKO FUJITA: Keith, I'm looking at where the market is trading right now, the Dow coming back off of the session highs, but still up 294. And we've talked so much about how the expectation of this prolonged low rate environment has helped fuel the rally that we've seen. Are we likely to see additional influence here into equities, especially given that there's not a whole lot of yield out there right now?

KEITH FITZ-GERALD: I think that's a very interesting and relevant question. My expectation is we will see the inflows. But we're not going to see them en masse, like we have in the past. Traders are addicted to cheap money. And right now, they simply can't decide if that's out there or not. So you're left with a conundrum, if you're a trader or an investor. Where do I put my money? And when do I put my money? The why is pretty much covered.

ADAM SHAPIRO: Keith, what would investors believe the two who see interest rates rising in the next 24 months, or are they going to disregard that?

KEITH FITZ-GERALD: You know, I think that's also a very insightful question. My own sense, based on traders I've talked to a lot, and in my own analysis, is I think they're going to disregard it. And they're going to disregard it because the companies that they want to bet on, the Apples of the world, even the Facebooks of the world, which are going in the wrong direction today, have a growth rate that is faster than any perceived growth rate in return on capital.

So if interest rates stay low, the bet is going to push you farther into those companies that can make more money, as opposed to retreating to the safety of the interest rate.

AKIKO FUJITA: Having said that, Keith, we have seen, or we've heard consistently, from Fed Chair Jay Powell, that it really is the virus that's going to dictate where the economy heads.

So I guess the question moving forward here is while we are really focused on where the Fed is and where their statement-- where their economic outlook is, how much of that is actually going to be a significant driving factor moving forward, given all of the other developments that are likely to move the market, especially on the vaccine front as well?

KEITH FITZ-GERALD: Well, that actually taps into my own thinking. I think the numbers in all the Fed, you know, the hairsplitting we're doing today, is almost irrelevant, because what people want more than anything is they want hope, they want a future, they want not to live in fear of either a virus, or civil unrest, or many of the other things that are troubling our nation at the moment.

So if we can lick those things, science can beat those things, we can have a civil conversation, I think this market takes off like a rocket. And that's what I'm waiting for.

AKIKO FUJITA: Takes off like a rocket. I mean, what are you seeing to year end? What are your projections?

KEITH FITZ-GERALD: Well, again, you know, the headlines are clearly all about sentiment right now. So you've got to take that with a very large grain of salt. There's going to be fits and starts. There's going to be false starts up and down. Volatility will be our traveling companion.

However, if we look at what's happening with our life, if we look at the digitization of money, we look at Apple yesterday, the pivot into health, those are all things for which the value has not yet been assigned, but we know five years from now, 10 years from now, we are not going to be able to live without.

All of this capital that's sitting there trying to debate the Fed eventually is going to realize that's a one way ticket, FOMO is going to take over, and in fact, the debt becomes not grow because of the virus, but grow in spite of the virus. And again, take off like a rocket, I think, is going to be the operative term if we get the right combination of headlines.

AKIKO FUJITA: Keith, one of the things we've talked about a lot is where the dollar has been trading. We've certainly seen a lot of weakness over the last several months, down about 4%, I think, over the last three, four months.

On the Fed policy, I'm looking at where the move is right now on the dollar index. It's pretty flat right now. But what is your expectation on that front? Are we going to continue to see dollar weakness? And if so, does that open up a lot of opportunities outside of the US?

KEITH FITZ-GERALD: You know, that's something I've been giving a lot of thought to. Historically, the world may hate our guts, but they love our dollar when the you-know-what hits the fan. So they come running to it whenever there's turmoil. However, as China has emerged, and rightly or wrongly, that's not my job to figure that out, rightly or wrongly, the Chinese Yuan may be perceived as an alternative to the dollar, 5, 10, 15 years from now.

So traders are logically going to have to begin factoring that into the equation. My expectation is the dollar is going to weaken quite a bit from here. How fast, I don't know, but that's logical as World Trade rebalances and everything reopens.

AKIKO FUJITA: Is that necessarily a bad thing when you look at what it means for corporate America. When we talk so much about the strength of the dollar and how that could be a huge headwind, how do you view that move in terms of what it could mean for the big names here?

KEITH FITZ-GERALD: Well, I'll tell you what, I'm not smart enough to figure that out. But a lot of the CEOs around the world in charge of the world's best companies have to factor this into their equation, everything from treasury to how they plan and design and release and price products.

So you know, I'm going to bet on the CEOs who are tasked with figuring this out, because they have to turn a profit for their investors and for their consumers, rather than the politicians who simply want to spend the money.