Thoughts on the Fed Rate increase?

[Senator]

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]

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]

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]

Here are my thoughts:

I agree....

 

[calmloki]

Here are my thoughts:

Ah. clear thinking.

 

[RetireAge50]

Crystal clear.

 

[RAE]

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]

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]

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]

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]

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.

 

[Al in Ohio]

They should have started with a full 100 basis points. This is wimpy start to a long overdue rate tightening. It will be nice when we get over 5 percent again.


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[explanade]

Hmm, VWINX must not have distributed today then, even though they have the same declaration record date in that table.

 

[explanade]

They should have started with a full 100 basis points. This is wimpy start to a long overdue rate tightening. It will be nice when we get over 5 percent again.


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It's going against the tide of every other nation. Some like Japan have tried to tighten in recent years, only to be forced to go back.

Some "market strategists" are saying it's still premature, with no sign of inflation at all.

 

[tmm99]

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.

So, are you saying, if you were thinking of buying VWINX, you might time your purchase after a distribution, like now?

 

[6miths]

Way overdue.

 

[tmm99]

Way overdue.

I mean, for the 2nd time, or for the 3rd time, or...

 

[frank]

no sign of inflation, that one always gets me. where do these people buy their groceries?

 

[ziggy29]

no sign of inflation, that one always gets me. where do these people buy their groceries?

Or health care?

Seriously, though, the crashing of oil prices has had a massive overall impact of inflation in macro terms. It has a ripple effect on a lot of things we buy, but it doesn't feel noticeable with things like food, and *certainly* not medical care.

 

[bobandsherry]

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

Other VG funds are not dropping like that.

Follow other dividend equity stocks and you see the same thing. This occurs as the amount paid out no longer belongs to the company/fund and is reflected in reduction in the market cap/value.

Said another way, money transfer from company to your pocket.

 

[audreyh1]

So, are you saying, if you were thinking of buying VWINX, you might time your purchase after a distribution, like now?

Well, yes, if in a taxable account. If it's getting close to the end of the year, it's best to wait until after distributions.

Be sure to check the dates. They are not all paying on exactly the same day.