Markets and FED QE

[RiverRat1]

Any predictions or guesses on what will happen once the FED starts to raise rates and reduce QE?

Obviously the markets will tank like a spoiled brat trying to get their way but after that will markets be able to get back near all time highs without FED helping as much?

One has to wonder how in the heck markets hit all time highs over and over all through everything.

Does "Don't fight the FED" that's worked the last 20 years on the way up also apply once they raise rates to cool the economy to fight inflation for the ride down?

[rtp]

Any predictions or guesses on what will happen once the FED starts to raise rates and reduce QE?

Obviously the markets will tank like a spoiled brat trying to get their way but after that will markets be able to get back near all time highs without FED helping as much?

One has to wonder how in the heck markets hit all time highs over and over all through everything.

Does "Don't fight the FED" that's worked the last 20 years on the way up also apply once they raise rates to cool the economy to fight inflation for the ride down?

If we only knew. [emoji3]

I wonder how fast they are going to have to raise rates to tame inflation. You know the transitory inflation THEY told us about earlier this year.

I’ve come to believe the exact opposite of what the experts say is happening. I think they are going to have to raise rates much quicker than they are saying. The idiots on the Hill are wanting to throw another couple trillion into the system. Buckle up, this time it’s for real. Carter will finally be off the hook as worst President ever. Biden’s Afghanistan debacle was worse than Carter’s Iran debacle and Biden’s inflation will be worse. The markets will not do spit over the next several years IMO. You can’t park your money in cash. I’m not sure what to do.


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[RiverRat1]

Lets assume they raise rates faster than most think. I'll stay long in my retirement accounts on mutual funds... But are there ways one should transition to ease the pain?

I know cash sucks. Will rising rates cause bond funds to rise or fall? Will growth stocks get hit harder than big cap stocks? (I'm in growth funds and regular big cap)

I know one has to ride it out even if it takes 10-15 years. But surely there's a couple things to move around to help.

[texasdeerhunter]

I don’t think they can raise rates high or fast. Our own government won’t be able to afford the interest rate increase on their own debt. Without printing more money. Making the problem worse. It’s a bad cycle. And could get worse. The Fed, IMO, has basically exhausted every tool in their tool box, they can’t do much of anything else to influence the economy in a positive way. If the economy starts to downturn, they have very few options. My guess is that they are saber rattling, will ease their bond buying some, maybe raise the fed funds rate .25%, and that will be it. They can’t stop the bond buying. And they can’t raise rates quickly or too high. That alone would trigger an economic crash.

[BrianL]

Markets would have to correct more than 50% to erase the gains of the last three years, and that ain't happening IMO. I'm up 26% this year. It will correct(my guess 10-15%), but even so I will have positive results. Markets seem to recover very quickly. They know its coming and till we get to at least 2% Fed rate, we aren't even back to normalized rates. Corporate welfare has to end at some point.

[RiverRat1]

I don’t think they can raise rates high or fast. Our own government won’t be able to afford the interest rate increase on their own debt. Without printing more money. Making the problem worse. It’s a bad cycle. And could get worse. The Fed, IMO, has basically exhausted every tool in their tool box, they can’t do much of anything else to influence the economy in a positive way. If the economy starts to downturn, they have very few options. My guess is that they are saber rattling, will ease their bond buying some, maybe raise the fed funds rate .25%, and that will be it. They can’t stop the bond buying. And they can’t raise rates quickly or too high. That alone would trigger an economic crash.

I've heard this before. LOL

They will have to either raise rates or we will have hyperinflation. I'm thinking they raise soon..and keep raising for 2-3 years.

[KactusKiller]

I've heard this before. LOL

They will have to either raise rates or we will have hyperinflation. I'm thinking they raise soon..and keep raising for 2-3 years.

I just wonder what that will do to the housing markets and property prices. Everything is sky high right now because borrowed money is almost free. I'm betting housing slows way down and maybe creates a small crash because so many new home owners are getting into flexible interest loans and won't be able to handle the new rates when they rise. Maybe not but could see it happening

[Ætheling]

If we only knew. [emoji3]

I wonder how fast they are going to have to raise rates to tame inflation. You know the transitory inflation THEY told us about earlier this year.

I’ve come to believe the exact opposite of what the experts say is happening. I think they are going to have to raise rates much quicker than they are saying. The idiots on the Hill are wanting to throw another couple trillion into the system. Buckle up, this time it’s for real. Carter will finally be off the hook as worst President ever. Biden’s Afghanistan debacle was worse than Carter’s Iran debacle and Biden’s inflation will be worse. The markets will not do spit over the next several years IMO. You can’t park your money in cash. I’m not sure what to do.


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I want to word this carefully as I dont want to give Biden any kind of pass here and I am not. We seem to always blame the Presidents in power for problems created by our government and give the Congress a pass. Biden has supported all this spending so he is not without fault but the Congress is the most guilty when it comes to the spending. Pelosi has been in charge of this country basically for decades.

[Shane]

Brian Wesbury is my favorite economist currently. He's not 100% right all of the time, of course. But he's very common sense oriented, and he's pretty well spot on most of the time. Here's his most recent take on trying to answer the question you're asking.

https://www.ftportfolios.com/Commentary/EconomicResearch/2021/11/23/short-term-gain-long-term-pain

[rtp]

Markets and FED QE

I want to word this carefully as I dont want to give Biden any kind of pass here and I am not. We seem to always blame the Presidents in power for problems created by our government and give the Congress a pass. Biden has supported all this spending so he is not without fault but the Congress is the most guilty when it comes to the spending. Pelosi has been in charge of this country basically for decades.

Agree to some extent about Congress though I personally give none of them a pass. The reason the President gets most of the blame is because he is the gate keeper. He can veto it and it would be done for. No way it goes back to Congress with enough support to override his veto. Ultimately he is the one giving the [emoji106]or [emoji107].


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[Gumbo Man]

If we only knew. [emoji3]

I wonder how fast they are going to have to raise rates to tame inflation. You know the transitory inflation THEY told us about earlier this year.

I’ve come to believe the exact opposite of what the experts say is happening. I think they are going to have to raise rates much quicker than they are saying. The idiots on the Hill are wanting to throw another couple trillion into the system. Buckle up, this time it’s for real. Carter will finally be off the hook as worst President ever. Biden’s Afghanistan debacle was worse than Carter’s Iran debacle and Biden’s inflation will be worse. The markets will not do spit over the next several years IMO. You can’t park your money in cash. I’m not sure what to do.


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I do agree with everything you have said but I’m curious. Why wouldn’t cash be the safe bet until until we get a new administration ( hopefully) on the hill and see which direction the markets will go with a better economy? In my way of thinking I would rather make no money as apposition to losing it all overnight.

[Shane]

I do agree with everything you have said but I’m curious. Why wouldn’t cash be the safe bet until until we get a new administration ( hopefully) on the hill and see which direction the markets will go with a better economy? In my way of thinking I would rather make no money as apposition to losing it all overnight.

Cash will lose purchasing power, given near zero interest rates and elevated inflation. Ideally, you could put your money into assets that would at least keep pace with inflation. Can't do that with "zero risk" cash/Treasuries/CDs these days though. So you just have to decide how much of all the various kinds of risks you want to subject yourself to - market risk, inflation risk, interest rate risk, default risk, liquidity risk, etc...

[Gumbo Man]

Cash will lose purchasing power, given near zero interest rates and elevated inflation. Ideally, you could put your money into assets that would at least keep pace with inflation. Can't do that with "zero risk" cash/Treasuries/CDs these days though. So you just have to decide how much of all the various kinds of risks you want to subject yourself to - market risk, inflation risk, interest rate risk, default risk, liquidity risk, etc...

Makes sense. Has anyone been watching AMC Entertainment stocks for the last year and a half? During lockdown last year it tanked at a couple of bucks and then rose to 72 and some change. Sure would have liked to have gotten in on that. I’ve been watching the trends all year and it’s up and down consistently. Looks like you could make some money on these waives.

[rtp]

I do agree with everything you have said but I’m curious. Why wouldn’t cash be the safe bet until until we get a new administration ( hopefully) on the hill and see which direction the markets will go with a better economy? In my way of thinking I would rather make no money as apposition to losing it all overnight.

Cash could turn out to be the smallest lose but doubtful. For round numbers sake let’s say inflation continues up and is at 10% and levels off there. If you park 1 mil in cash to wait it out, you will still have your 1 mil a year later but it will have the purchasing power of 900k. I hope that makes sense.

I’m not sure the best solution but I’m thinking commodities and real estate will be safe places to park money in a high interest rate environment.

For the past 2 years as my bonds have matured I have been moving that money into equities and real estate. So far those have been excellent moves. I’m 58 and currently my bond holdings are right at 10% of my net worth. Various real estate, including home, make up about 40%. Stocks make up the other 50%. This is pretty aggressive by typical standards for my age but I plan to live another 40 years so I can weather the ups and downs of these cycles. I also live well below my means so I don’t have to change my lifestyle if/when turbulence hits.

What I don’t own and never have owned is commodities. I think that may be about to change.


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[Gumbo Man]

Cash could turn out to be the smallest lose but doubtful. For round numbers sake let’s say inflation continues up and is at 10% and levels off there. If you park 1 mil in cash to wait it out, you will still have your 1 mil a year later but it will have the purchasing power of 900k. I hope that makes sense.

I’m not sure the best solution but I’m thinking commodities and real estate will be safe places to park money in a high interest rate environment.

For the past 2 years as my bonds have matured I have been moving that money into equities and real estate. So far those have been excellent moves. I’m 58 and currently my bond holdings are right at 10% of my net worth. Various real estate, including home, make up about 40%. Stocks make up the other 50%. This is pretty aggressive by typical standards for my age but I plan to live another 40 years so I can weather the ups and downs of these cycles. I also live well below my means so I don’t have to change my lifestyle if/when turbulence hits.

What I don’t own and never have owned is commodities. I think that may be about to change.


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We have been talking about staying out of the market for a while until the world levels up again and investing in more real estate but if the sh*t hits the fan liquidity will be our best friend. Just kind of nervous these days planning on selling the business in 3 years and retiring if there’s anything left.