While we are managing our personal economies by spending, saving and investing, the Fed is managing the entire American economy. This is where the fight starts. This situation is not too different than watching the tennis players at Wimbledon.
The Fed wants you to spend more, particularly by taking on loans. The best thing to do - from the Fed's point of view - is to buy a new home. Many of us have other plans. We are trying to get our household balance sheets back to normal and save for retirement.
While you may be “fighting the Fed” it is important to understand that any potential change in Fed policy can impact your personal economy and your portfolio. Lately the Fed has been in the news a lot. My job is help you make sense of all the noise out there.
Federal Reserve Chairman Ben Bernanke recently announced that the Fed may begin to taper its quantitative easing program by the end of the year. In plain English, this means that the Fed might slow its easy money program that has kept interest rates at very low levels.
This sent investors scrambling, causing a sell-off in the stock market. If interest rates go up then it costs more to borrow thus slowing an already sluggish economy. After watching the markets react badly to the tapering talk, the Fed quickly responded by holding a press conference to assure investors and clarify its position. Such action will only take place if the right economic conditions are met.
So why this recent announcement by Bernanke? According to the chairman, the economy is showing real signs of strength, making quantitative easing less necessary. He can cite the rise of home prices and recovery of the stock market to support his case. But there are still cracks in the economic ship. According to a survey released onJune 24thby Bankrate.com indicated that 76% of Americans are living paycheck to paycheck with little to no emergency saving.
Unemployment hasn’t been under 7% since November of 2008 and is currently at 7.6%. The Fed can do what it wants to, and that's what scares the markets.
We may once again be entering new territory. Just as nobody knew what was going to happen with unprecedented amounts of monetary intervention by governments and central banks, nobody knows what will happen when these programs stop.
The immediate fallout from Bernanke’s announcement indicates that we may be seeing increased uncertainty and volatility in the markets. The rise of the markets from their 2009 bottoms have been based on investors knowing the Fed would print money and provide easy credit. With a Fed pullout looming, investors know that assets and borrowing costs will have to adjust. This adjustment period means the markets might gyrate.
We knew this day was coming and have been talking about it for some time. We have formed a plan around these economic eventualities to help you achieve your goals of building wealth and economic security. We cannot change what the central bank does, but we can choose how we react to its policies.
Watching the tennis players at Wimbledon this week at the All England Lawn Tennis and Croquet Club in London, England is very exciting. Not any different than watching the stock market recently with all of its volatility. Tennis has a way of explaining what happens when a player hits his or her own ball into the net, for example. You may know this is called "an unforced error" because the opponent didn't affect the game in any way. Investors do the same thing when we are listless, distracted or even clueless about what we are doing with our life savings. Instead of being proactive and doing all things possible to avoid severe downside risk, if we have any money left we give ourselves a pass by calling it "a random walk on Wall Street" as if there was nothing we could have done to keep our life savings from going down like the Titanic, never to see the light of day. Whether it's tennis, any other sport or managing money, the best performers are the ones that are more consistent than volatile. We are here to assist you by not only building your financial plan, but helping you stay in the game in spite of volatility and uncertainty."Bull or Bear: We don't care!"
President, Investor’s Advantage Corp.
Registered Principal, National Planning Corp.
Master Certified & Charter Member, HS Dent Advisor’s Network
P.S. “Managing money is never left to chance. Win by losing less.” - John Grace
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
This information contained in this newsletter is general in nature and
should not be construed as comprehensive financial, tax, or legal advice
and the opinions expressed are not endorsed by NPC. As with any financial
or legal matter, consult your qualified securities, tax, or legal representative
before taking action.
While there are over 3,000 local financial advisers with many different opinions, it’s possible that not all firms in the Conejo Valley pay for independent research. This independent research is one of the features that helps investors see the larger picture and make appropriate, if not more informed decisions. The independent research has been used with investors in the workshops the firm conducts since1999 when John Grace became Master Certified and a Charter Member with the H S Dent Advisor’s Network.
“Master Certified” references those who pay a fee to learn about various economic trends and have demonstrated by passing tests the ability to effectively answer.
Some of the information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends on our economy. No one person or strategy can accurately predict market movements.
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