Fed Raising Rates In Dec

[Viking]

After the employment report released today it appears likely the Fed will raise rates in Dec. How are people thinking about this event? Are you making any changes to your portfolio?

 

My first thought is to ask if this is just another head fake.

My second thought is rising rates will likely cause volatility to increase.

My third thought is easy money caused financial assets to increase in value; is it logical to assume tightening will cause financial assets to fall in value?

My fourth thought is what happens if recent issues in China rear their ugly head again (another yuan devaluation or a sell off in stocks)

 

95% of my portfolio is US$; this will not change (Canadian investor).

1/3 of my portfolio is large cap US banks; planning no changes here.

40% of portfolio is now cash. If stock markets continue higher the next few week I likely will sell some stocks and realize some nice gains and increase cash to 60% and wait in the weeds for something to go on sale.

[berkshire101]

Just a guess, but I want to say they're putting off raising rates until after the 2016 elections.  I would like REITs to trade at lower valuations. 

[rb]

There's been a lot of speculation about the fed hiking rates but I don't think anyone knows. I've been hearing that the fed is about to raise rates at the next meeting for about 6 years now.

 

Here's a couple of reasons why the fed may not raise rates:

1. Inflation is still below target. Remember the mandate of the fed is to raise rates to keep inflation from going over the target. Why raise when you're below target?

2. The last employment report was indeed good. However the fed don't really make monetary policy by the seat of it's pants employment report to employment report.

 

Now if the fed does raise rates big dividend payers and financials are probably gonna get hit. On the other hand USD will probably go up and you'll make money of the USD/CAD FX rate.

[ERICOPOLY]

Found a funny, conspiratorial article (produced sometime around 2002) that claimed the Fed always tightened during an election year when Democrats were in office all the way back to 1960.  Because they are a "defacto agent of the Republican campaign committee".

 

http://davidbrubaker.info/FedIntRateChart.v3.pdf

 

It looks like we broke the pattern 4 years ago when rates were not raised during the Obama/Romney cycle.

 

Conspiracies aside, it seems to suggest the economy gets overheated by the end of a Democratic term and is too choked off by the end of a Republican term?  Ha ha.  It said not only does it always raise rate at the end of the Democratic term, it also always cuts them at the end of the Republican term.

 

[Hawks]

Don't think the equity market needs to fear rising interest rates which, even after a slight increase, are at historical lows. I seem to remember that Ken Fisher in his book Debunkery showed that historically, markets can go up even in a climate of rising interest rates. When the Fed starts fighting inflation, that's another matter however. My main concern is the effect of rising rates on the U.S. $; going to make it tougher for companies depending upon non-domestic sales. Personally, I prefer a rate rise and banks and insurance companies to name two, should finally benefit. It's been a long wait.

 

[frommi]

Since we are not in a normal business cycle i wouldn`t expect a rate raise to do what it normally does. As far as i know the last rate raise in a deleveraging ended in a severe market crash in 1937. Since we have zero inflation rates at the moment its not necessary to fight inflation, the only reason to do it is to fight stupid investor behaviour and pop asset bubbles. With the 4% surge in most financials on friday i would argue that a 25% rate raise is already priced into the market and you can`t profit of that move anymore.

 

This is from march http://www.cnbc.com/2015/03/17/relax-the-fed-isnt-risking-a-1937-style-slump.html. Dalio has raised concerns about similarities to 1937, but economists are not worried. ( Which should get everybody worried. )