Chair Powell answers reporters’ questions at the FOMC press conference on September 18, 2024. Photo courtesy of the Federal Reserve.
Remember when the talking heads said to stay away from bonds? That the balanced approach was dead? Well, they were wrong.
Not that I’m taking a victory lap, I’m not. Because now that the Fed has cut interest rates by a half point, fixed income investing just got that much harder. All those eschewing bonds this year and last may wish they had some maturities beyond the 6-month CDs that now, overnight, will be less appealing.
But that’s not why you’re here. You want to know what this rate cut means to you. I’ll tell you. It means you better be prepared for the onslaught of ads selling you a fixed income for Your Retirement Life. As more and more CDs roll off and the Fed continues its crusade to nowhere good, insurers and investment houses will put on the full court income press.
As you can read here and here, ETFs have splintered the stock market like a woodchipper where there’s something for everyone, but be careful what you buy—you may be unpleasantly surprised by how those high yields are derived.
If you enter the stock exchange building, don’t be startled when you see a picture of Fed Chairman Jerome Powell posted as “Employee of the Year.” The more you think about the timing of this cut, the more you realize it isn’t about Main Street.
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” – Ben Bernanke
“To me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target.” – Janet Yellen
“Below-target inflation increases the real value of debts owed by households and businesses and reduces the ability of central banks to respond to downturns.” – Jerome Powell
If the Fed stays on this course and gets its way, we’ll be seeing rates much lower this time next year. It’s as if they’re trying to force a normalized-looking yield curve at the expense of the Baby Boomers seeking income.
Remember Dick Young’s North Star, and invest accordingly. This is no time to be a speculator. It’s time to look for your margin of safety.
Action Line: When income becomes scarce, prepare for the onslaught of income salesmen selling high yields. When you’re ready to talk, let’s talk. But only if you’re serious.
Originally posted on Your Survival Guy.
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