A sharply divided Federal Reserve voted to hold interest rates steady in this week. At the same time the Fed signaled it is absolutely, positively most likely going to raise rates in December, unless something really bad happens.
Previously we discussed Chad Morganlander’s prediction that it’s a fifty-fifty call whether we see a market meltdown by year’s end. This was bizarrely echoed in a statement by the Fed’s Open Market Committee: “Near-term risks to the economic outlook appear roughly balanced.” In other words, there’s a fifty-fifty chance of something really bad happening before the end of the year.
Like any decision from our nation’s central bank there are winners and losers.
Robert Kiyosaki once famously stated that savers are losers and that is particularly true in our current monetary environment. By maintaining an accommodative monetary stance, the Fed guarantees that your savings will continue to be an inconvenience to your bank, thus earning only token interest payments. The inflation rate in the U.S. continues to dance around two percent; a relentless force washing away the value of your cash savings.
Gold Buyers: Winners
Of all the tangible assets investors can purchase easily, gold is the most liquid and the one most sensitive to the buying power of the dollar. The Fed’s keeping interest rates low puts upward pressure on gold prices through at least the end of the year.
This group of winners should come with an asterisk. Stock prices sagged in anticipation of a September rate hike and bounced back when it didn’t materialize. The more certain expectation of a rate hike in December will be a cloud hanging over markets through the end of the year. Look for investors to hang on for the on-record dates in December to collect dividends and capital gains—but then brace for massive selling heading into the new year. This is not going to be a fun quarter for stockholders and December is going to be tough.
Bond Buyers: Losers
Even though bonds and interest rates tend to move in opposite directions, the bond market was in upheaval before the rate hike decision. The Fed’s choice to hold interest rates where they are will do nothing to calm the waters. Bonds are usually the most safe, boring investment you can make, but a decade of accommodative monetary policy has turned the normally staid bond market into the Wild West, where bonds are traded like stocks.
Tangible Asset Buyers: Winners
Those who have shifted their investment strategy away from paper investments in favor of tangible assets are the biggest winners. Tangible assets include gold and silver coins but the definition also stretches to include commercial real estate, income producing property such as multi-family housing units, income producing machinery and land resources such as timber, farmland and aquaculture.
With any move the Fed makes there are going to be winners and losers in the economy; that’s the chief reason you diversify your investments. But with the current level of uncertainty in markets, the biggest winners are people who have traded in their paper investments for things of tangible value. That seems like the wise strategy for the indefinite future.