The Fed Grabs the Stage

December 18, 2015

Finally, after nine years without a raise in interest rates, the Federal Reserve has raised interest rates 0.25%.

BUT EVEN MORE IMPORTANT,  Fed Chair, Janet Yellen has announced that the need for further rate increases will be reviewed monthly during 2016…indicating that there will be an uncertainty period for a week before the Fed meeting each month.  Not good for the markets…this constitutes a  psychological head wind.  Maybe Ms. Yellen just wants to show us who is boss.  Could be a very expensive ego trip.

” What isn’t necessary to change is necessary not to change”. Low inflation,  Low oil prices.  No help from the housing market to reinforce the wealth effect for consumers.  Where is the confidence going to come from if the Fed is beginning to apply the brakes….from people who are holding down two jobs ?.  Bad for export jobs  as dollar will be stronger and exports more non competitive.  Bad for income statements of multinationals as 2016 foreign earnings will not translate well on year to year comparisons .

So why the increase ? because Ms Yellen, after endless hinting , felt obliged to come through with higher rates without anywhere near a compelling reason.

Dr. Martin Zweig, ” Winning on Wall Street” preached that stocks will probably climb in an environment where interest rates are declining and stock prices will probably decline in an environment  where interest rates are increasing.  His mantra was ” Don’t fight the Fed “. He was a part time professor of finance at Iona College, New Rochelle, NY ( my alma mater ) and just happened to own ( while he was alive ) the most expensive apartment in NYC, occupying  the top two floors of the Hotel Pierre, 5th avenue.  He obviously followed his own advice.

I can’t give advice…but I can tell you that while I am still invested following the SPY 200 day month end model, I have been lightening up this week out of respect to Fed Chairman Yellen who (and maybe I’m just imagining it ) is beginning to look more and more like a grey haired Black Swan.

 

Richard Maurice Gore

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