Thoughts {12.17.15}

Well the Federal Reserve {the Feds} raised interest rates yesterday by 1/4 point or 25 basis points and the world did not end.   Stocks rallied on the dovish announcement and subsequent news conference.  The forward guidance on when they might likely raise rates again was either dovish or hawkish depending on who you listened to.  Stocks didn't care as they continued a rally that began the day before and looks like it will run now for a third day based on how futures are trading right now.  I've always thought that the first few rate increases would be greeted well by stocks as they would be considered evidence that the economy recovery had advanced to the point where the Feds could take off the training wheels.  I just don't see how a 25 basis point increase in rates affects the sales of cars or the like.  Since I remember years of much higher rates of GDP and economic growth when interest rates were substantially higher than they are now, it's hard for me to understand how moving rates slightly north of 0% is going to have a dramatic impact on growth.  If it does then the economy is in worse shape than we think.

Speaking of stocks, the last big bad event of the year is behind us now with the Feds off the table.  Seasonal patterns and probability suggest that stocks now are free to run somewhat between now and December 31st.  May of course not happen as there's no guarantees in this business.  But right now there are too many people on Wall Street that want stocks higher for the next two weeks.  Too many hedge and mutual funds are having poor years.  Best way to alleviate that somewhat is to try and goose the markets for the rest of the year.  Easier to do at the time of the year when folks begin to think of time off and volume thins out.  The holiday season is a good time for these folks to try and push things around.

The investment world has also been transfixed by the implosion of the junk bond world.  I haven't commented on this because 1) my computer systems were on the fritz.  2) While I think that most of the time the implosion in that section of the markets would be more cause for concern, I think that most of the problems in high yield are related to the lowest credits and to the energy markets.  I don't think at this point in the cycle these issues are representative of credit issues throughout the system.  We'll of course continue to monitor this but that's our current assessment of that sphere.....and finally....3) with the exception of small legacy amounts we do not directly own high yield ETFs for clients or in personal accounts at this time.  We did have positions in this sector until about a year ago but sold these back then when the decline in their yields did not in our opinion justify the risk of owning the securities.  It is generally not my policy to discuss individual ETFs that we might own for clients.  I am making an exception here due to the high profile nature of what's gone on in this sphere and the questions that I've had about it.  We do own some legacy mutual funds for clients and it is possible that some of these funds have the potential to have invested in this space.  But as of this time we do not directly own these funds {again except for small legacy amounts}.

Again as mentioned computer issues kept me from posting this week.  Here's the schedule until the end of the year.  God willing and the creek don't rise {an old Indiana expression}, we'll be back in the turret next week.   The week after we'll be off and we'll pick up back here bright and early next year.