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The Federal Reserve Rate Hike

Updated on December 28, 2015

Manhattan Island

Wall Street and vicinity.
Wall Street and vicinity. | Source

The Rate Hike

This is as good a time as any to ditch stocks, bonds, and other financial instruments affected, one way or the other, by the latest Federal Reserve move. It is not as though the Federal Reserve, in the past, was to blame for a blasé economy deep into the doldrums. In fact, the Fed has finally come through on the plus side for the individual, the first time in longer than I can remember. If affords the individual an excuse, even if it is not fully warranted, to get rid of financial predators and their casino schemes. If you have or had money in the bank, chances are somebody contacted you either by phone or, yech, in person, to tell you that your dollars were becoming more and more worthless. If there ever was a time when the contrarian solution to all your questions ended with the word, mattress, it has arrived. Keep whatever you can unless you feel lucky because the wolves are always out there in number to take it all away.

To be fair, the wolves were and continue to be right. The fix has been in for a while against the individual. Inflation, reported or unreported, visible to anyone who can read a receipt, is eating up money in the bank -- checking, savings, and traditional money market accounts. With the passage of time, the dollar lost value. To be honest, so did the Euro and other currencies. Rates at or near zero enabled banks to park large quantities of money without having to pay interest. Despite familiar, unconvincing talk of stimulating a weak economy, being cautious, and looking out for everybody, why the Federal Reserve, not a governmental institution, decided to raise rates from nothing, remains cloaked in mystery. Individuals hope that it marks the start of a trend. It has been an unfair burden for "advisors" to put them into stocks or funds that pay anemic dividends when they might have collected a few percentage points more safely and securely from a simple bank account.

Buy Signal

Typical analysis of an oversold stock.
Typical analysis of an oversold stock. | Source

Myth #1: Investing in Stocks is Investing in America

It is not entirely untrue. It is just that America has changed as has the stock market. It requires research to separate the chaff from the wheat. Some companies probably think of shareholders as dopes. Others court their favor, often at the sacrifice of self-interest. It depends. Do companies really need individual investors? Some do not go public. To them, the answer is no. But for the bigger, badder type? You'd better believe it. Conversely, especially among the well-known names, investors expect them to perform with constant excellence. If the share price sags, they will demand an explanation from their brokers. The latter might soothe their clients' nerves by telling them, as was once true, that unless America collapses, their respectable company, probably a giant cyclical, is not going anywhere but up. If necessary, he can pull out historic charts. True enough, the government has manifested a biased favoritism for large corporations that is not merely hot air. Have these large infusions of cash been good for the country? That is another question to which the answer is probably negative.

Americans could send a signal to Wall Street by a concerted effort to exit stocks. To do so is neither criminal, sinful, nor unAmerican. There are other markets and an assortment of investments that could be made in lieu of stocks -- none, of course, without risk. But anyone who has kept up with the new practices of traders, whether from books by Michael Lewis or other sources, should be very concerned about tucking their life savings away into stock and bond portfolios. There is no need to cut and run, just monitor the situation. Why, for instance, high frequency trading, which can cause wild market gyrations, is legal, is another legitimate gripe. Main Street best beware. If it is not too late, let individuals restore their faith in banks.

Outside Tobacco Auction North Carolina

1939 photograph.
1939 photograph. | Source

Myth #2: Diversify Your Personal Portfolio

Once again, there are arguments on both sides of the issue. If you want to make real money, do not diversify. If you are riding a hot industrial stock upward, you do not also need a sideways transportation stock. If, however, you are defensive, or lack confidence, by all means diversify. The latter can, given the unpredictability of the market, limit losses. But why be in the market at all? At present, it is at historic highs, and will likely ascend further in the months ahead. But the individual does not really know why. It is not his or her hundred or so shares that feeds the hunger like the plant in Little Shop of Horrors. It is, rather, investments in the multi-millions, whether counted in dollars or shares, by the very rich or institutions. The latter regularly props up the Dow and the Nasdaq. That is why critics say that during 2015 the rallies were exclusively internal.

The risks, taken in the aggregate, are much more numerous and treacherous than I have ever heard explained, privately, by word of mouth, or publicly, in the media. It has been a long time since representatives of Charles Schwab, once practically the only discount broker, began a practice of informing the interested, from all walks of life, how they might increase their earnings in the stock market. Those quaint days are also gone. A single piece of information can not only markedly change a company's near term fortune, but bring all equities down across the board. If you have no qualms about waiting for a Blue Chip, such as GE, to recover its share price over a period of time involving decades, then fine. But again, why? Naturally, there are those who will advise you to sell, take your losses, and then put the remainder in another company, possibly a boring utility, that is rock solid, with no troubles on the horizon. You can do this, if you want. You can also drop out with whatever you have left. It is your prerogative.

American Motors Rebel

Times change.  So does the market.
Times change. So does the market. | Source

Stock Market Players Sound Off

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The Dollar -- Not Made in China

United States Currency.
United States Currency. | Source

Economic Inequalities

That we are created equal no one contests. But some are greedier than others. The most recent issue of Foreign Affairs addresses the matter of domestic, economic inequality. Over time the differences have been due mostly to profits and returns to which only the wealthy are privy. But recently, the poor, despite a variety of circumstances, together with genuine effort, are getting poorer. This is a matter for concern. Statistics show that what is currently happening has not always been the case. Now what? Over the preceding decades, beginning, say, with the 1970s, the fortunate few have been acquiring an unprecedented percentage of American wealth.

Something about the deeper divide reminds one of the Carter-Reagan debates that ultimately led to the triumph of the latter over the former. The 1970s were difficult years. President Carter emphasized again and again that it would take good, old-fashioned work, adding how it was impossible to get something for nothing. Incredibly, he was very nearly proven wrong, except that risk, a permanent element in the stock market -- investment capital -- can at times appear as though it were nothing. The bull market of the 1980s changed things, created enormous wealth, contributed to the downfall of the Evil Empire, and improved the general mood across America. But that was then.

How the party continues on Wall Street is beyond belief. There have been so many crises over the years since the 1980s that our sick economy is probably artificially propped up by means of borrowing alone. Still, there persists a feeling, unprovable as to whether or not justified, that certain industries, like housing, were allowed to fail, while others, which attracted urgent federal attention, were saved by means of magical cash. Presto! It came out of nowhere. What does this mean for the individual? That is an even more obscure question, since it is so hard to find him or her in the picture -- except on April 15th.

Federal Reserve Building Chicago

What's going on inside?  Don't ask.
What's going on inside? Don't ask. | Source

Rolling With the Punches

It does look as though many Americans do not appreciate, deep down, that the condition of US business, however measured, has anything to do with their lives. For instance, Mitt Romney, a prominent businessman, whose expertise and experience might have benefitted the national economy, was thoroughly rejected. The leading topics on the news usually concern terrorism, lurid events, courtroom dramas, endless analyses of words spoken or mispoken by public figures, trivia, critiques, and personalities, et cetera. It is as if the money will take care of itself if we can only get these other, intangible things right first. But the plain fact is that America is not as business friendly as it once was. The gentrification of the marketplace, driving Mom and Pop outfits off the map, was a cruel if lasting venture. Price control, inferior products, and stuffy, rude customer service has been standardized. The consumer is already innured to them. This could change, however, if better moves are made at the top, because, all kidding aside, there is such a thing as a trickle down effect.

We know what the problems are. We have not, however, found the right prescription. We are no longer the worker- and business-oriented immigrants our ancestors were. Instead, we are becoming a re-educated people who must say and think the right things or else. Uniformity is becoming the holy grail. There are auxiliary matters, too, such as outsourcing, tariffs, various sectors in a downturn, and a relatively tepid job market for those who look. Also, proper incentives are scarce for small business persons or scared owners of affordable franchises. Nonetheless, enormous potential remains. The end of the Fed's zero rate policy could actually unleash it.

Whole Foods (Paycheck)

What it all comes down to.
What it all comes down to. | Source

The Lure of Leaving

In the global environment, America is not the only game in town. In the same issue of Foreign Affairs dealing with inequality, mention is made of how Latin and South America are prevailing upon various forms of corruption. Our neighbors to the south are attracting high quality American citizens. These are not the very rich nor the needy poor. They are in the middle, and have acted in a rational fashion with which it is hard to argue. They get better medical at lower rates. They eat fresher foods. They have nicer weather. The pace at which they live does not drive them crazy or make them sick. One could go on. Suffice it to say that the Fed's meager but welcome move has awakened hopes that have lain dormant for years. It is nice to once again look toward a brighter future.

It remains to be seen if foreign nations can adopt the values that America once embraced with greater fervor. To be honest, I have read up on Belize and other attractive, alternative living situations. Personally, I cannot work up the amount of trust necessary to give myself whole-heartedly to the idea of spending half a year or so at the mercy of the unknown and untried. I keep thinking of Midnight Express. Sudden surges of anti-Americanism can result in kidnappings and kangeroo courts. At the same time, the problems accumulating at home seem to occasionally approach critical mass. 2015 was full of tragedies that did not have to occur. Can anything be done to reverse the reduced quality of life to which we are getting acclimated? Are the ex-pats correct when they say, in so many words, "it's all over"? I hope not.

A Guarded Opinion


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