Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

If You're Worried About Rising Interest Rates, Look at This Chart

Interest-Rates / US Interest Rates Aug 04, 2013 - 12:34 PM GMT

By: DailyWealth

Interest-Rates

David Eifrig writes: "Don't fight the Fed."

You can hear that phrase on bond-trading desks throughout Wall Street. It's a warning to investors and traders. Don't try to outthink the central bank or anticipate its next moves...


Federal Reserve policies and their effects on the economy are like the movement of a giant aircraft carrier. It takes a long time for the direction and momentum to shift. The ships don't swerve suddenly.

The Fed is the same way. The influence of its monetary policies is pervasive and relentless. If the central bank is cutting rates and trying to juice the markets to keep the economy moving along... you'd better not bet against fixed-income and stock markets.

In my experience, working on the desks of a few Wall Street firms, trying to go against the Fed is a bad trade... You'll lose almost every time.

But... you may ask... what happens when the Fed does begin to shift? We don't want to be caught on the wrong side of any new policy, right?

It turns out, you don't need to lose sleep about that, either. Let me explain...

As readers of my Retirement Millionaire service know, I always base my decisions on the facts. I don't risk my money on speculations or hypotheses. I look deep into what the data tell me is really happening in the market. We make our decisions based on evidence.

So today, we're going to look at the facts surrounding how markets react to Federal Reserve market policy. I assure you the data tell a different story from the one you're likely to hear about "taper risk" and the imminent demise of the "bond bubble."

Let's look at the facts. What would likely happen if the Fed comes out tomorrow and announces, "Great news, the economy is booming and we're raising rates and ending all of our stimulus!" Would that be our signal to run to cash?

Not at all. And here's why...

When an announcement is made that rates are rising – whether it's ahead of the Fed's actual actions or an advance warning – stock indexes like the Dow Jones Industrial Average will take a tumble for a few days, maybe a week. But believe me... they'll come roaring back.

This chart shows stocks for 40 years, essentially my investing lifetime. The shaded areas are the time when the Fed was raising its federal-funds rates. That's the rate it sets for banks to lend each other money. The average gain when the Fed was raising rates was 14%.


That's not a trade I'd want to miss.

But be thankful that most people don't know that. It makes it easier to benefit from misguided or overblown fears in the stock market. This is why I recommend people stay invested in stocks in their portfolio's asset allocations.

In fact, the U.S. economy continues to grind higher. I don't see evidence that the Fed will declare victory and cut off its bond-buying as soon as some people think. And even if it did, you'd have time to adjust your portfolio before the true effects filtered through the economy... Again, the Federal Reserve's ship does not turn on a dime.

That means a portfolio of well-chosen stocks will continue to perform well. And it means investors should not unload their unleveraged fixed-income positions, either. With a slow-growing economy and minimal price inflation, real returns on almost all securities still look attractive.

My core holdings always include businesses that are shareholder-friendly and that will make money in almost any economic environment. If I can buy sales and cash flow at cheap levels, I want to do that trade over and over...

No matter what the Fed is doing.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

.S. If you want to build a safe, secure, income-producing portfolio – that can profit in any interest-rate environment – I encourage you to check out Retirement Millionaire. Right now, it costs just $39 for a year's subscription. We keep the costs low to make sure we can get useful, fact-based investment insight into as many folks' hands as possible. And if you don't like it after four months, you can get all your money back. Learn more here (without watching a long promotional video).

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules