Thursday, June 20, 2013

Wall Street throws a tantrum (at retirees?) after Fed chairman tells the future truth

Wall Street threw up a temper tantrum late yesterday (let's say that it vomited), which has continued Thursday, after Federal Reserve Chairman Ben Bernanke “didn’t keep his mouth shut”  (that’s what one friend tweeted) and warned that Fed stimulus would ease as the economy and employment improve.  One trouble is that interest rates are rising slowly as the housing market also recovers.
   
A typical Yahoo! story on “Buy and Hold” is here
   
There’s no question that right now there is a lot of irrational emotion in the market.  Bernanke may sound too rosy on jobs, too;  ask Barbara Ehrenreich about her research on low wage workers, who are often retirees.
      
The problem for retirees is that bond go down as interest rates rise, and stocks go down too when the Fed lets up on stimulus.  On the other hand, raw cash in savings accounts may pay a little more again, as may fixed-term CD’s, and interest payments from new bonds will rise.  In recent years, retirees have built portfolios loaded with non-cash instruments with interest rates so low, and some could see their net worth drop quickly in the short run.
   
Oil prices are also lower, as are gold prices (which does not please the rural Doomsday Prepper crowd).
   
The behavior of any specific portfolio on any given day is hard to predict.  Just because the Dow slips a couple hundred points doesn’t always mean that particular portfolios get hurt a lot.  It’s quite variable. 

Later Thursday, Mark Gongloff wrote about the Fed's behavior (after Thursday's 353 point drop in the Dow) in Huffington. here. The rise in interest rates is not accompanied by an expectation of inflation, as it usually would be.  On my own portfolios, Wells Fargo Advisors has marked practically everything (mutual funds, both stocks and bonds) a "buy", as if it thinks everything is now undervalues. 


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