Another Brick in the Wall

This graph pretty much says it all. We have had 16 consecutive 25 point rate hikes starting June 25th, 2003. Two straight years. And tomorrow, everyone expects another brick in the wall, #17.

I am no economist, but the increases hurt the market in so many ways. (1) people can now invest in T Bills with absolute safety at 5.25%. That deosn't seem so bad. (2) If one tries to value a stock by projecting their future earnings and cash flow, you now have to discount at a higher rate which lowers the net present value. (3) If businesses have to pay more to borrow money they are less likely to want to expand. (4) Finally, consumers have to pay higher rates on credit cards, borrowing for homes or cars etc. Most "experts" think this is the final hike... but if you rewind back to December 2005, they were saying the Fed would stop at 4.75%. So in reality no one really knows. Tomorrow, we should have a better clue.

Does it matter? Should we hold off on investing until we can forsee clear sailing? Jim Jubak does advise selling into rallies and being more into cash. He is a pretty bright guy (Jubak's View). I don't know. I don't want to sell my MFI portfolio, as I have a plan, a strategy. So that is off limits. I have sold some mutual funds and that is sitting in cash. Then I have the rest of my portfolio... I am hesistant to sell my winners in my brokerage account as I don't want to incur more taxes (I have plenty from Mutual Fund sales). I do have a few positions in IRA and work retirement (401K) that I could sell... hmmm. Maybe that is what I should do.

Weird day in the market. Can't say I understand it. The IWV was up 0.60% but my MFI was down by 0.27%. I can see why JG said you gotta believe and it is difficult to stick with the program. I have lost serious ground to the benchmark in June, I was 1.4% above it at the start of the month and now I am about 3% below it. This is real money we're talking about... none of this hypothetical nonsense. I can just imagine the pressure on mutual fund managers not to get too far below the benchmarks. I am smiling on the outside, but it is gut-wrenching on the inside just 3% below the benchmark.

My tech stocks continue to take a licking with ORCT down 3.6%, OVTI down 2.4% and IVII down 6.5%. Oh well, we'll catch up some other time (name where that lyric is from). It is probably best not to look every day (I can't help myself). Remember, "we don't need no thought control".