Where does the economy go from here?


Stock markets around the world have hit the panic button over the last few trading sessions. What does it mean to you as an investor?

One of the drivers of the stock panic was when the Federal Reserve made it clear that all the artificial manipulation is going to stop.

It’s like having a patient on drug to keep their heart going and, as you dial back the drugs, the question is does the heart keep beating economically? Lots of countries around the world have signaled no.  Without U.S. manipulation of the money supply and forcing interest rates lower, they’re saying they’ll go into reverse.

Here in the U.S., a lot of investors are panicked that corporate profits will decline on the heels of the Federal Reserve’s announcement.

But the reality is there was also going to be an adjustment, always going to be a day of reckoning. So the Federal Reserve is signaling that capitalists should get ready and adjust. There is a belief among the highest economic thinkers that the U.S. economy can stand without external manipulation.

Interest rates that have fallen and hurt savers will, if the Federal Reserve is right, start to rise for savers in the wake of no more external manipulation.

Some interest rates for borrowers have already moved up while others have not. 30-year fixed rate mortgages have gone up in just weeks from 3.5% to 4.25%. That’s significant. It has caused the largest spread I’ve ever seen in 15 year vs. 30 year notes. BankRate data shows a spread between the two that’s at just hair under 1%. I’ve never seen that kind of spread before.

I told you recently about 10 year mortgages and their extraordinary low rates. Meanwhile, my credit union is still making car loans at 1.9% for people with good credit.

Depending on your situation, you may have seen no change on the impact of interest rates on your life. But if you hold mutual funds through a 401(k), or an ETF (exchange-traded fund,) you’ve seen a rough week.

But the question for you becomes…when is your retirement horizon? The younger you are, the more you benefit today from the decline in stocks today, not a rise. It’s all about time horizon.


Gold bugs have been hit hard, though. Gold is now around $1,200 an ounce. Silver is down from $50 an ounce to $20 an ounce. That supports what I’ve always said about precious metals – they can be about 5% of 10% of your portfolio, but any more than that is dangerous.

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