Welcome to the 03-22-2018 update from your Pocono Summit Certified Financial Planner and retirement planner, Mike Savage. Today, Mike takes a look at rate adjustments and their effects.


I waited to write this article until I saw that the Fed did the expected and raised the short-term rates by .25% as expected. I also saw that they expect 3 rate hikes for 2018-as expected.

Personally, I think they had to raise rates to save face. The economic numbers that are coming out recently are far from screaming recovery- they are indicating pullback.

Let’s not forget that we had a couple of major hurricanes that led to not only rebuilding of homes and large insurance payouts but also many cars were destroyed and had to be replaced also. This led to a flurry of economic activity that led many to believe that an economic recovery was finally underway.

Since then, however, home starts are down, auto sales are down 3 months in a row and down substantially further than the “experts” had expected. It appears to me that the Fed is tightening credit conditions into an economic pullback. Historically, this doesn’t work out well.

In addition, the Libor rates are on the rise- and substantially. Libor is a rate that determines some mortgage rates, floating rate loan rates and other loan rates. It is quite possibly the most important interest rate in the world. According to Morgan Stanley, yesterday it reached 2.27%- its highest yield since 2008. Just as a little history the LIBOR rate was 2.24 in 2008, by the and of 2009 it was .4 where it stayed through 2010. By 2011 it increased to .55 and stayed at .35 from 2012 until the end of 2014. By the end of 2016 it was at 1%, by the end of 2017 it was 1.5% and currently it sits at 2.27%- up 31 sessions in a row. That is a HUGE move in a market like this and could easily put a funding problem at the head of the list of what could bring about a large correction in both stock and bond markets. Real Estate could also take a large hit as interest rates move up also.

As the Fed raises rates if we look at history we would expect the dollar to get stronger. Higher rates have historically led to more demand for the currency. As I am writing this, however, the US dollar is substantially LOWER. Why is that? My guess is that the hundreds of billions that they are putting into the treasury market to keep the 10-year note yields from soaring (Greg Mannarino) is not going unnoticed by the rest of the world. It appears that if they were to stop propping up the bond markets the yields would spike higher and could render many entities insolvent. Continue and the problem just becomes larger and larger. Similar to when you start “printing” money. When you go down that path- the longer you stay on it the harder the fall you’re going to take when it ends- one way or the other.

In addition, we have the Chinese Oil market opening on March 26, 2018 and oil exchanged in Shanghai will be settled in Yuan and can be converted to gold. While I don’t expect an immediate downdraft in the dollar I do believe some of this current weakness is tied to the initiation of this exchange as, over time, the dollar will become less and less dominant in world trade leading to a far less valuable dollar.

If you are thinking of making a major purchase- particularly if what you are buying is imported you may not want to put it off. If you are thinking of investing in metals or hard assets you may not get a chance to get the prices we see in US dollars today for a long time- if ever again in our lifetimes.

While the financial game shows and mainstream media overall is giving the impression that all is well keep this in mind. All is well but there are tent cities popping up all over the place. All is well- there is no inflation but people are having a harder and harder time paying bills and are further in debt than at any time in history. Debt is NOT wealth! Source: USAdebtclock.org

Pensions are underfunded by trillions- and that is using even the most rosy of scenarios.

All is well but many states are teetering on insolvency because of years of kicking the pension underfunding and deficit-financing schemes to give the illusion of fiscal responsibility where none existed.

All is well- we have full employment! Yeah- that’s why when Toyota put out an ad for 1000 jobs in Texas 100,000 people applied. Of course, when you just don’t count 95 million people, of which the majority have just given up trying to find a decent job- you can actually SAY you have full unemployment but you are either being purposefully deceitful (that’s my guess) or a moron.

All is well- 50,000 jobs created in retail stores in January as store closings and bankruptcies are at all-time high levels for 2 years in a row now.

All is well! Wages are rising! This may be the biggest whopper of them all. Think about what your monthly expenses are and keep these numbers in mind.  According to the Social Security Administration:

50% of all wage earners earn equal to or less than 30,533.31 (that’s 2544.00 per month BEFORE taxes!)

67.3% of all wage earners earned equal or less than $46,641,00 (3886.00 per month BEFORE taxes)

2/3 of all people make 46,000.00 or less. How many could actually pay their bills on that?

So am I saying wages are NOT rising. As a matter of fact no. I am not saying that. What I am saying is that the increases are extremely top-heavy. Those at the top are seeing LARGE wage gains while the regular people who make the economy run are being left farther and farther behind. As prices rise for food, shelter, healthcare, energy, etc. there are going to be fewer non-necessities bought.

All is well! You don’t need that barbarous relic gold- or its cheaper cousin silver- trust us! I am sure that is why Hungary has asked for their gold back from London, why Germany is taking its gold back from New York, why Russia, China, India, Iran and many other countries have been on a buying binge of gold and silver in the past few years but have stepped it up substantially recently- particularly Russia.

The major banks- who don’t miss an opportunity to trash gold in the media- are also stashing large amounts of gold and silver in their vaults- for themselves! I have written about the tons of gold that Goldman Sachs and HSBC have added and the silver that JP Morgan has been hoarding. Don’t listen to what the say- watch what they do.

Anyone who has not taken steps to diversify their assets is, in my opinion, taking far more risk than you are being led to believe.

Be Prepared!

Mike Savage, ChFC, Financial Advisor

2642 Route 940 Pocono Summit, Pa. 18346

(570) 730-4880

Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do n ot guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

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Diversification does not ensure gains nor protect against loss.