Welcome to the 12-14-2017 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike covers the recent new coming out of the Fed.
As expected, the Fed raised rates by .25% on Wednesday afternoon. It appears that the stock, bond and metal markets all like the news. Of course, the “experts” are all weighing in with what it all means and making bold predictions of higher highs in stock markets and Janet Yellen is patting the Fed on the back for “strong employment” – only in Fedland of course where when you don’t count 95 million people who can’t find a job and report a 4% unemployment rate. I would laugh but the joke is on us so I just can’t laugh too hard.
I also am hearing statements about inflation being too low- let’s ask those seeing 50-100% increases in their health insurance premiums if THAT inflation is too low- or when I go to the store and pay $4.00 for a loaf of bread- is that the inflation that’s too low? Or is it the $40,000 + per year that I was spending to send my daughter to college for the last 4 years?
This reminds me of what many people used to say about computers- if you put bad information in you will get bad information out. I have to wonder out loud if they really believe this stuff or if they just think we are gullible enough to just believe whatever they say.
I have watched month after month as interest rates are expected to be raised and the price of silver and gold get beat up supposedly because interest rate hikes are bad for the metals. Each time the price has fallen going into the rate hike announcement and has snapped back after the announcement has been made. During this latest episode there were billions of dollars of paper (not real) gold that has been sold off at certain times (almost daily in the past 2 weeks) to manage the prices lower and apparently allow the folks that are holding puts (short positions) to cover those positions without incurring massive losses.
Today the rates were hiked- the perceived reason for the weakness of course- and if what they said was true the prices should have fallen. Lo and behold gold is up by 1.5% and silver is up 3% at 3PM on Wednesday– the day of the announcement that was supposed to lower the price!
Pardon me for being skeptical of the “analysis.”
Personally, I have turned bullish on the metals (more than usual) after seeing the numbers being used to keep the prices down and the effect (or lack of effect) that these massive numbers are having. I think that just a few short years ago shorting of this size would have caused the price to decrease as much as 5 times as much as the declines have been in the past few weeks. This goes back to what I have said all along. Each and every intervention –in my opinion- whether it be in stocks, bonds, real estate, metals, etc. has to get larger and larger to have the same effect.
There was a “sale” on November 10th 2017 of $4.2 billion of paper gold just around the London market close. (Zerohedge) As I watched this the price was lowered around $15.00. Within 2 days the price was back where it started and there have been large “sales” (maybe not quite as large) most days in the last 2 weeks. This is what I believe has led to the weakness in the metals prices and there is little, if any, fallout from higher rates. Actually, according to recent history these rate hikes have led to the best rallies of the year- too bad they come after a period of weakness almost every time.
A few years ago I made the supposition that since the Fed and indeed most other central banks were “printing” money in almost unlimited amounts that it would lead to higher prices for virtually everything. What I was not aware of is that if you can “print” virtually unlimited amounts of money you can manipulate asset prices both higher and lower. I believe that it is an important lesson for those who are contemplating investing in bitcoin. It appears that much of the games played with prices happen in the futures market. While this may lead to higher prices short-term (like gold etfs did for gold) it just may lead to those with a virtually unlimited checkbook being able to reign in the price in the long run. Something to keep an eye on.
Personally, I am still of the belief that when this experiment finally ends people will demand real assets as opposed to a computer code, pieces of paper or promises.
I also continue to believe that virtually ANY outcome is possible and that everyone should be as diversified as they can be. That means holding a percentage of assets that make sense to you in as many asset classes as possible.
While the current run has been wonderful for those participating it could end at any time.
Do you have an exit plan- or at least a plan to preserve at least some of those gains if things go south?
If you’re not sure maybe we should have a chat.
Mike Savage, Financial Advisor
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