I’m actually a little surprised how little movement we’re seeing in the markets so far this week. Since Monday morning the S&P 500 has stayed within a 0.41% range which is pretty tiny considering the event packed week. Perhaps today’s Fed announcement will spark something. It’s widely expected there will be another 0.25% rate hike later today.
You’ve heard my rants before on how I believe the normalization of rates and the Fed balance sheet has been too slow but yeah, too slow! Fed days really get my blood boiling… I’m going on a very long run later to try to calm down. Serenity now! (if you’re my age or older you’ll get the reference)
Federal Funds Rate since Jan. 2000:
Federal Funds Rate since July 1954:
We’re fast approaching the longest bull market in history yet rates are still not even half of the long-term mean. I think most people understand why such extreme measures had to be taken in response to the financial crisis, but over 9 years later and still just starting to come off the bottom. I try to avoid the doom and gloom as best I can but this isn’t a great position to be in at this stage of a bull market.
Without at least a reasonable interest rate it puts a lot of pressure on traditional investors, of which most of the world is part of that group. Those already retired aren’t able to rely on fixed income investments to carry them through the years, and a large percentage of the population of upcoming retirees are seeing shortfalls as well. Just as alarming, pension funds around the world are naturally under pressure too. Those investment models aren’t based on 100% stock market, there has to be some diversification but a 0 – 3% rate of return in fixed income just doesn’t cut it. Many of those pension models started decades ago and were based on 7% annual return or more.
Let’s just hope the markets can accept and absorb four rate hikes a year plus the Fed reducing it’s balance sheet below at least three trillion. They’ve barely started their quantitative tightening…
The Fed balance sheet:
Where do they think this is going? When the proverbial has hit the fan are they really going to pretend nobody saw it coming? Is there any doubt who’s going to take the brunt of the damage? Of course average investors, savers, and retirees. You didn’t think the Federal Reserve members were going to see a pay cut did you?
Our VTS community is tactical with our investing and diversified into alternative investments which I believe is the only way to safely reduce portfolio risk and still achieve a solid rate of return. I have confidence we’ll successfully navigate any storms on the horizon so my rant isn’t for us. It’s for the tens of millions who will be facing hard times through no fault of their own. We’ve seen this movie before and it doesn’t have a Disney ending…
I hate Fed days. It’s a guaranteed bad mood on a time schedule. Every three months I know I’m going to be grumpy, I can mark it on the calendar. The only silver lining is I’ll get a good 16km run out of it to calm my nerves. And boy is it a picturesque lap around Stanley Park in Vancouver.
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