This past Wednesday, November 2, 2022, the Federal Reserve again increased interest rates by another +.75%. This is the third increase of +.75%. This action is now the shortest and highest increase in history. And, per the Fed Chairman, they are not done increasing rates to get ahead of what I phrased “The Real Return Illusion”.
This is Chairman Powell’s press meeting quote. It is a very important quote. As you read it, be thinking about “Don’t Fight the Fed”!
Powell: “What I’m trying to do is make sure our message is clear, which is, we think we have a ways to go. We have some ground to cover with interest rates before we get to that level of interest rates we think are sufficiently restrictive.”
And he was clear that the Fed will err on the side of pushing rates too high: “If we were to over-tighten, we could then use our tools strongly to support the economy. Whereas, if we don’t get inflation under control because we don’t tighten enough, now we’re in a situation where inflation will become entrenched.”
The capital markets are interest rate sensitive. Depending on which index you choose to measure, they are down between 25% - 40% in valuation.
At the WSG, we did not go unscathed, but we have not taken that level of a reduction in values in our client family accounts. We have raised cash by selling positions twice earlier in the year and rest on too much cash in our effort to not make our client family poor. The positions we hold are meant to be fine performers over the next five years. The cash will be our “shock absorber” of choice until we see a more positive trend. There will be no bells ringing to signal “all clear”. So, we will carefully, thoughtfully and very intentionally nibble at the seeds of opportunity offered via lower prices in the marketplace as the Fed does its tricks.
I’m interested in your thoughts, comments and observations. Feel welcome to call, email or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.