Thoughts on the Fed Rate increase?

[GravitySucks]

Quote:

Originally Posted by cyber888 No one except the Banks will benefit from the rate hike. All banks are going to increase their lending rates, and no one will increase their savings rate or their CD rate. The owners of the big rich banks are very happy. As usual, consumers with high debt are in the poor house.

So load up on Bank Equities.

[calmloki]

Pretty sure some starlet with a wardrobe "malfunction" or a white college girl disappearing on an island holiday or some nutbag with a gun killing three in a MickyD 'cause he didn't get a toy with his kiddymeal will have as much effect. Or maybe it all depends on the gravity or breathless urgency with which things are reported.

From a personal standpoint, signing up for a CapOne Spark card a month ago, spending $5021 on it, and crediting the account with $598 in bonus and 2% cashback today had a much bigger effect. Pretty shortsighted though, just not focused on the big picture I guess.

[nash031]

Quote:

Originally Posted by doneat58 Now almost exactly one year out from FIRE, I would just LOVE to see my investments do SOMETHING. Seems they have been stuck in neutral for what, 4-8 months?

I'd almost prefer they not do anything or even go down rather than go up a bunch before I pull the plug. JMO. AFTER I'm out, yeah, a nice 30% year would be swell!

[RAE]

Quote:

Originally Posted by Hamlet Anyone want to bet that we'll see zero again before we see 3% ?

Yep, that is my guess as well. There was really no justification for this increase, other than the fact that they've been talking about doing it for a long time. Inflation is non-existent (the way they measure it, anyway), and although unemployment has decreased, wages are still basically flat.

[tmm99]

Can you someone explain to me why the market will be more bumpy because of the interest rate hike (which I heard people say more than a couple of occasions)?

[Senator]

Quote:

Originally Posted by cyber888 No one except the Banks will benefit from the rate hike. All banks are going to increase their lending rates, and no one will increase their savings rate or their CD rate. The owners of the big rich banks are very happy. As usual, consumers with high debt are in the poor house.

Exactly. Banks were clamoring to the Fed to raise rates. The Fed is a private bank, owned by it's member banks. The member banks wanted the extra revenue/profit, and they got it.

The economy is worse off than it was a few months ago, and they stayed put then.

You pay more interest, and yet the savings interest is the same.

[Senator]

Quote:

Originally Posted by tmm99 Can you someone explain to me why the market will be more bumpy because of the interest rate hike (which I heard people say more than a couple of occasions)?

When rates are near 0 in a saving account, bond or CD, you have to put your money in the market to make money.

As rates rise, the choice become more difficult. Guaranteed 5%, or take a chance on the market?

People will be shifting back and forth base don their risk tolerance, and it creates a bumpy ride.

[Mulligan]

Quote:

Originally Posted by jim584672 Who profits? Preferred stock holders.

An additional layer of safety, Jim! Ya, those greedy little CD people's interest doesn't pay our divi does it. Just bought me 5 of WFC-L yesterday...Still have some more cash to burn...May go back to that well again with another 5....


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[RetireAge50]

Here are my thoughts:

[aja8888]

Quote:

Originally Posted by RetireAge50 Here are my thoughts:

I agree....

[calmloki]

Quote:

Originally Posted by RetireAge50 Here are my thoughts:

Ah. clear thinking.

[RetireAge50]

Crystal clear. 😄

[RAE]

Quote:

Originally Posted by Senator Banks were clamoring to the Fed to raise rates. The Fed is a private bank, owned by it's member banks. The member banks wanted the extra revenue/profit, and they got it. The economy is worse off than it was a few months ago, and they stayed put then. You pay more interest, and yet the savings interest is the same.

I agree. Yellen's conclusion that the data shows the economy is well along on the road to recovery is baloney. This move could backfire on them, though, as Jeffrey Gundlach explains:

Gundlach: Fed may have jumped the gun on 'mission accomplished'

[LARS]

The substantive issue is not a 25 basis point increase in FFR. The real thing to watch is the Fed's intentions on its bloated balance sheet. Over the next three years, some $1.1 trillion in Treasurys could roll off the Fed’s balance sheet if reinvestments were to cease. Tack on the potential for mortgage backed securities (MBS) to prepay and/or mature and you’re contemplating a figure that approaches $2 trillion. This is where the real rubber meets the road...


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[RAE]

Quote:

Originally Posted by LARS The substantive issue is not a 25 basis point increase in FFR. The real thing to watch is the Fed's intentions on its bloated balance sheet. Over the next three years, some $1.1 trillion in Treasurys could roll off the Fed’s balance sheet if reinvestments were to cease. Tack on the potential for mortgage backed securities (MBS) to prepay and/or mature and you’re contemplating a figure that approaches $2 trillion. This is where the real rubber meets the road...

Good point. But I don't think Yellen (or anyone else, for that matter) has any idea how to unwind that balance sheet at this point. They have never faced this kind of situation before. Here is what Ben Bernanke said recently:

“The Fed could leave the balance sheet where it is and that wouldn’t be a problem,” he told New York Economics Club last month, noting its size is “internationally normal” in relation to the economy’s output."

So I expect very little movement to address the balance sheet over the next few years. I think they will just continue to reinvest the principal of both classes of securities as they mature or are paid down, for the most part. As someone said in another article I was reading recently......"we may be basically looking at QE infinity".

[explanade]

Market was way up but what is up with Wellsley today?

VWIAX is down 2.84%.


I had another fund, MAPTX, go down over 10% on one day last week too.

[REWahoo]

Quote:

Originally Posted by explanade Market was way up but what is up with Wellsley today? VWIAX is down 2.84%.

No more phone calls folks, we have a winner!

Year-end distributions for Vanguard funds and ETFs

[explanade]

I don't follow, dividend distributions make the fund share price drop?

Other VG funds are not dropping like that.

[ejman]

Quote:

Originally Posted by explanade I don't follow, dividend distributions make the fund share price drop? Other VG funds are not dropping like that.

Yes, amazing phenomenon you've discovered today. Never have seen anything like it before.

[audreyh1]

Quote:

Originally Posted by explanade I don't follow, dividend distributions make the fund share price drop? Other VG funds are not dropping like that.

Yes, in equity funds, balanced funds, and some bond funds, dividend distributions make the fund share price drop.

VWIAX payed out capital gains distributions as well. Those are responsible for most of the drop.

Part of what you are seeing is the difference between an actively managed fund and an index fund. Index funds tend to have much smaller cap gains distributions.