This week's 75 basis point rate hike is only the second back to back 75 basis point hike in 40-years.
Fed Chair Powell announced that, “There will be “ongoing rate hikes as appropriate.”
Powell further indicated that 50 basis point (bps) rate hikes are to follow.
Today markets are predicting a 75 bps in September.
The Fed appears to be serious about fighting inflation.
Global asset bubbles could be at risk.
Higher interest rates slow economic activity by making everything more expensive and results in less buying at all levels of the economic pyramid.
The bond market is saying that there will be a period of slow economic growth for the “foreseeable” future.
How long is the “foreseeable” future?
Can you personally ride out the “foreseeable future” without taking preemptive action?
Remember the adage, “The markets can remain irrational longer than you can remain solvent.
We are in a historic period where complacency can ruin a lifetime of saving and investing.
Don’t let it happen to you.
What would a 40% hit to your net worth mean to you?
Do you think we have demand destruction in the stock market?
Real estate homebuyers are faced with mortgage payments that have doubled in the past year.
Is demand destruction in real estate next?
A recession is when your neighbor is unemployed. A depression is when you are unemployed.
If you’re confused about the direction of the economy, don’t despair. So is Powell.
The Fed Chair commented, “In a normal economy it is very difficult to know what the economy is going to be in 6-months . This is not a normal economy.”
So the Fed has made it clear that the future of the economy is opaque.
If the Fed can’t predict, then no one can … and it’s all the more imperative that you find unbiased advice and think for yourself.
Bond God Jeffrey Gundlach was interviewed after the Fed hike. Gundlach made several points:
First, The best possible outcome is a “mild recession.”
Second, We’ll probably have 4 more hikes this year.
Third, The Fed is committed to tightening.
Fourth, Economic headwinds will continue to cause market volatility.
Fifth, Fed money printing must stop. The endless liquidity from the Fed has created many of the economic, social and cultural issues that we face today.
Words of wisdom from a Bond Daddy with impeccable street cred.
Focus the return of your capital versus return on your capital.
The information contained in this Higgins Capital communication is provided for information purposes and is not a solicitation or offer to buy or sell any securities or related financial instruments in any jurisdiction. Past performance does not guarantee future results.
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Ray Higgins
San Diego