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How the Market Works

How the Market Works: Federal Funds Rate – Sh** or Get Off the Pot

Posted by kdadmin on October 29th, 2015.

How the Market Works: Federal Funds Rate – Sh** or Get Off the Pot

Call me crabby, but it’s time for the Feds to sh** or get off the pot.

Don’t let the chart above intimidate you. The blue line is the Federal Funds rate. The red line is the S&P 500, and the orange line is the US inflation rate. What do you notice? After periods of low federal fund rates, and inflation rates, the Fed cranked up the ratesvery quickly and torched the S&P 500. It happened in 2000, and again in 2007. Sure, blame the sub prime meltdown, but don’t overlook the Fed’s involvement.

There is no point served in prolonging the super low interest rate environment we’ve had for NEARLY A DECADE. I mean, aside from making political cabinet members look good asthey take credit for an improved economy during their term. Even though the forces were set in motion during the previous candidate’s reign. #billclinton

I’ve been rather silent this month. Honestly, I just got sick of screaming into the wind. The market is up again backed by … um, wait, WHAT has actually changed since the August pounding? Oh right, nothing …

Earnings reports are FEEBLE, major economic indicators are flat lining. Has everyone forgotten about economic cycles? Remember, down comes after up. Honestly, we’re just one stomach flu away from our ideal weight. Or one Ebola crisis, or Russian offensive, or Middle Eastern entanglement … This is how the market works.

After all, the Fed essentially said that their target rate is around 3.5% by 2018. So, how, exactly, do we get there by not taking the first step? Isn’t there a proverb about taking the first step? Maybe someone should send it to them. The longer we wait, the more painful, and drastic, the process is going to seem. Also, look at what happened each time the Fed’s hit their target rates in the past? The 2001 meltdown, the 2008 meltdown …

So, what does this mean for you? Stocks are a dangerous place. Maybe not all stocks; but those affected by major macroeconomic moves, which is nearly all stocks. So, what am I doing? Just quietly buying bonds on “good” stock market news (read: false hope). I’m just waiting for the market pundits to be REALLY sure the market is correction-proof. Just like when they were all bad mouthing Apple two weeks ago, and now nobody can say Apple @ less than 200 without seeming like an pessimist. When they’re REALLY confident, I might even short the S&P500. But until then, I’m just happily collecting my bond dividends. Read my series about bonds here.

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