{"id":48849,"date":"2018-12-26T10:38:09","date_gmt":"2018-12-26T15:38:09","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=48849"},"modified":"2018-12-26T10:38:09","modified_gmt":"2018-12-26T15:38:09","slug":"sorry-virginia-there-is-no-santa-claus","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2018\/12\/sorry-virginia-there-is-no-santa-claus\/","title":{"rendered":"Sorry, Virginia, There Is No Santa Claus"},"content":{"rendered":"

So who looks more right now, President Trump or Federal Reserve Chair Jerome Powell? Based on the market\u2019s reaction to last week\u2019s Fed rate increase, we\u2019d have to say it isn\u2019t Powell.<\/p>\n

That doesn\u2019t mean he isn\u2019t right, at least looking at the situation objectively and what Powell is supposed to be doing as Fed chair. While it\u2019s certainly arguable that the Fed does need to take a pause from raising interest rates for a few months to fully digest the recent economic data, which is showing the economy slowing some \u2013 but nowhere near a recession \u2013 it is right to continue tightening, no matter how unpalatable that is to the market.<\/p>\n

Quite frankly, most of the calls for the Fed to refrain from raising interest rates are blatantly self-serving. Of course, investors don\u2019t want the Fed to ever tighten policy, because, as we\u2019ve seen, higher rates mean lower stock prices. Not many people like that, especially when it\u2019s been ingrained in them over the past 10 years that stock prices only go one way \u2013 up \u2013 and that \u201cbuying the dips\u201d is a no-lose strategy to make up for past losses.<\/p>\n

Welcome to reality, folks.<\/p>\n

It certainly was nice when the federal funds rate was near zero, and the Fed showed no intention of raising it from there, or only raised it by baby steps, making it super cheap for businesses to borrow money, making them more profitable and their stocks pricier.<\/p>\n

And it was certainly nice when the Fed was buying about $2 trillion of Treasury bonds and mortgage-backed securities, raising bond prices. <\/p>\n

Now, after eight years of this kind of monetary policy, investors don\u2019t like it when it\u2019s time to get back to normal, even if the economy is growing better than it has in years and employment prospects haven\u2019t been this good since the 1970s.<\/p>\n

Who knew that the nine-year-old bull market could one day come to an end?<\/p>\n

The fact is, investors, want to have it both ways. We want strong economic growth, low unemployment, rock-bottom interest rates, and a non-stop booming stock market, all at the same time.
\nWell, it doesn\u2019t work that way. The Fed\u2019s mandate doesn\u2019t include making sure investors always make money.<\/p>\n

Investors seemed a lot happier when the economy was in the doldrums, barely rising above stall speed for years, with the unemployment rate more than double what it is today. But at least then we had the Fed continually boosting asset prices with zero percent interest rates and endless variations of quantitative easing. <\/p>\n

Now we have the opposite happening, and people don\u2019t like it. Although savers and people looking for a job don\u2019t seem to mind.<\/p>\n

Everyone knew that the day of reckoning \u2013 when the Fed pulled away the proverbial punch bowl \u2013 was going to happen eventually. Well, here we are. <\/p>\n

Maybe it\u2019s time we all lowered our expectations and accepted that the Great Recession is over and that everything the Fed threw at it has to be stuffed back into its tool chest.<\/p>\n

Maybe it\u2019s time that investors \u2013 both professionals and retail \u2013 have to do a little more homework than they\u2019re used to and seek out those investments that will prosper in this new old normal, rather than stick all their money in an index fund and watch it go up. That strategy ain\u2019t working. <\/p>\n

As I approach retirement, I\u2019ve had to get a lot more defensive with my investments, especially given the current investment environment. While putting money into bank certificates of deposit doesn\u2019t carry the same excitement as hitting a home run in the stock market, it may be the right approach right now. Sometimes boring is better.<\/p>\n

Savers have been longing for this day. One-year CDs are currently fetching about 2.75%, while two-year CDs are going for 3.0%. That\u2019s a lot better performance than the FAANG stocks. In addition to the FDIC guarantee, CDs also carry a lot of sleep insurance.<\/p>\n

I\u2019m not advocating taking all of your money out of the market now \u2013 if your portfolio is already down a lot this year, that might be foolish, unless you really can\u2019t sleep at night or need the money in the very near future. But putting about a quarter or a third \u2013 even half \u2013 of your money into safe CDs for about a year or so seems like a smart idea until the market fully adjusts.<\/p>\n

Of course, laddering your CDs, so you always have some dry powder coming due makes even more sense. Allocate your CD money into various tranches \u2013 some due in three months, some in six months, etc. <\/p>\n

Again, not very exciting maybe, but it could be the right tonic for today. <\/p>\n

Wishing everyone a great holiday season and a prosperous new year.<\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

So who looks more right now, President Trump or Federal Reserve Chair Jerome Powell? Based on the market\u2019s reaction to last week\u2019s Fed rate increase, we\u2019d have to say it isn\u2019t Powell. That doesn\u2019t mean he isn\u2019t right, at least looking at the situation objectively and what Powell is supposed to be doing as Fed […]<\/p>\n","protected":false},"author":16,"featured_media":48852,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[6191,9264,6824,511,6938,230,11252,8771,7022,11253],"class_list":["post-48849","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-economic-growth","tag-fed-chair-jerome-powell","tag-federal-open-market-committee-fomc","tag-federal-reserve","tag-george-yacik","tag-interest-rates","tag-low-unemployment","tag-president-donald-trump","tag-raising-interest-rates","tag-rock-bottom-interest-rates"],"yoast_head":"\nSorry, Virginia, There Is No Santa Claus - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"Quite frankly, most of the calls by traders for the Fed to refrain from raising interest rates are blatantly self-serving.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/wwwtest.ino.com\/blog\/2018\/12\/sorry-virginia-there-is-no-santa-claus\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Sorry, Virginia, There Is No Santa Claus - 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