Most people probably read this blog for posts like this. So it's time to post another one. If you remember nothing else from this blog, remember this:
Fed interest rates are free-market driven by profit motive, not "set" by benevolent dictators who claim they only want to help you.I've written a ton about this, but it really is this simple:
When there is a long, long line of super-smart bank customers (not to be confused with bankers) who WANT to borrow (= invest in the economy, with leverage), then banks can charge high interest rates. Venture capital gets expensive for one reason: the market allows it to get expensive. Banks raise their retail interest rates because they have lots of borrowers competing to pay them, then the private Fed bank cartel follows by raising their wholesale rate to juice profits. The Fed is not "tightening to curb inflation, to help the good people of the world." That's just stupid.
When there is no line of super-smart bank customer who WANT to invest in the economy with leverage, interest rates plunge to 0%.
So people ask me all the time, when should I jump back in? The answer is simple: you should jump in when the smart people who make the economy hum jump in. When interest rates start a sustained climb, slowly marching higher, month after month, year after year, then there is customer-driven demand for risk taking.
As long as the Fed can't find anyone dumb enough (except the government) to WANT to buy their paper funny money, they have to market it at fire-sale interest rates. That means stocks are, or shortly will be, in free-fall. And anytime you hear the word "stimulus" that means "no smart customers" and only the government can be coerced into borrowing to pad bank profits.
Quitting your job forever is as simple as understanding this simple relationship:
Interest rates low, or worse, falling? Sell.I'm talking about sustained, macro trends, not politically motivated blips. Our current trend is clear, and it is firmly established.
Interest rates high, or better, climbing? Buy.