Tag: The Federal Reserve

Dude, Where's My IRA?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The experts still tell us we should allocate our retirement portfolio to 60% stocks, 40% bonds, give or take, depending on your age.

But how does a sensible investor do that in this era of zero percent interest rates? Do bonds really have a place in your portfolio anymore? It's a reasonable question to ask.

If you put 40% of your money in safe (i.e. U.S. Treasury) bonds that are unlikely to default, it's essentially dead money, unless you're okay with earning less than 2% a year over the next 10 years.

If you want to earn more than that, you'll have to go way out on the risk curve. And if you're going to do that, you're probably better off putting your money in blue-chip equities or ETFs that pay high dividends. They're arguably safer than junk bonds, and the dividends will cushion your portfolio if stock prices go down.

But then there goes your diversification. You'll have 100% of your portfolio in equities. What happens when the stock market finally corrects? Will your bond portfolio save you? Continue reading "Dude, Where's My IRA?" →

So What Did Yellen Actually Say?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


My educated interpretation of what Janet Yellen told the Senate Banking Committee on Tuesday boils down to this: The Fed is going to raise interest rates when it is going to raise rates and not one day earlier.

In other words, I don't have any idea, and it's likely she doesn't either. But it's probably not likely to happen in the immediate future, maybe not even this year.

Whether that's a mistake or not is a different matter (I think it is). But it was clear – or rather unclear – that the Fed has no intention of doing anything about raising short-term rates above near-zero anytime soon.

Analysts and pontificators, of course, did their best to put their own spin on what she said (kind of like what I'm doing now). In typical Fed Chair-speak, Yellen provided a bunch of "we might do this – but then again we might not" comments that could mean just about anything. Continue reading "So What Did Yellen Actually Say?" →

Needed: More Transparency at the Fed

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The Federal Reserve is starting to feel some heat from both the right and the left about how secret its activities deserve to be from American taxpayers. The fact that next year is a presidential election year and the heat is being brought by two candidates for the Oval Office may mean that the pressure may amount to something this time.

On January 28 Sen. Rand Paul, R-KY, reintroduced his "Audit the Fed" bill that would subject the Fed's monetary policy discussions and decisions to audits by the Government Accountability Office (GAO).

"This secretive government-run bureaucracy promotes policies that have impacted the lives of all Americans," Paul said. "Citizens have the right to know why the Fed's policies have resulted in a stagnant economy and record numbers of people dropping out of the workforce."

Previous versions of Paul's bill – originally sponsored by his father, former presidential hopeful Ron Paul, and others – have gotten nowhere, largely because Democrats controlled the Senate. Now, of course, that body is now controlled by the Republicans. Paul got 30 co-sponsors to his bill. Continue reading "Needed: More Transparency at the Fed" →

Has The Market Made A U-Turn?

Posted on by The INO.com Team

Hello traders and MarketClub members everywhere! If you look back at my very first post for December, titled "December Can Be A Dangerous Month For Traders", you'll understand why these markets are becoming so volatile. Yesterday's announcement, or lack of announcement by the Fed, was all the market needed to reverse course and rally sharply creating the best one day rally for the year for the indices. Not only was it a sharp rally with new buying, but it was a sharp rally fueled by a great deal of short covering.

The questions on every investor's mind has to be, "Is this the Santa Claus rally? Have I missed it and is the rally for real?" In order to answer that question you have to delve deep into the makeup of the market. As many of you know, the Trade Triangles have been neutral and out of the market for intermediate term traders. What that means is that you have no position in the market at the present time. As traders and investors, there are three opportunities to make money in the markets, you can be long the markets and profit when they go up, you can be short the markets and profit when they go down or you can just be out of the market. Staying out of the markets is often times a very smart choice, particularly when the markets are irrational and thinly traded.

Here's an interesting question from Kathy on the Members Blog today: Continue reading "Has The Market Made A U-Turn?" →

Joel Horneck And Fed Policy

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Remember that classic episode from the very first season of Seinfeld, when Jerry wants to "break up" with his obnoxious friend, Joel Horneck, but just can't bring himself to do it? Jerry can't stand the guy, but the thought of actually telling Joel he doesn't want to see him anymore is just so painful that even after he gets up enough nerve and delivers the blow over lunch at the diner – after which Joel, not unexpectedly, starts to blubber and carry on in public – Jerry immediately backs off and apologizes, further prolonging his agony.

I thought of that episode (I usually think in terms of old sitcom episodes, much to my wife's annoyance) after I read the Federal Reserve's policy statement on Wednesday. It once again chose to kick the can down the road (I really hate that metaphor, but it does apply here) and put off raising interest rates until sometime into the unknown future. Apparently the Fed just can't bear the thought of having the financial markets pull a Joel Horneck on it.

Not only did the Fed not remove the "considerable time" language from its statement, as many market participants were expecting. Instead, it added a brand new noncommittal phrase, saying that "it can be patient" before it begins to "normalize the stance of monetary policy," i.e., raise interest rates from its current zero to 0.25% target range.

Of course, both being "patient" and "considerable time" can mean anything, or nothing, at all. What they absolutely don't mean is "right now" or "very soon." At her news conference following the statement, Fed Chair Janet Yellen said a rate increase won't take place for "at least the next couple of meetings," meaning well into next year, and maybe not even then. Who knows?

Perhaps Mrs. Yellen and the six of her colleagues on the Federal Open Market Committee who voted for the statement (there were an unusually high three members who didn't go along) thought they were being cute in adding another set of evasive, ambiguous words that show that it still can't make up its collective mind.

Is the Fed simply indecisive? Incompetent? Or simply afraid of what the market reaction might be if it stops prolonging a policy that is no longer necessary? Continue reading "Joel Horneck And Fed Policy" →