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Am I wrong? I believe Fed Chair Janet Yellen has destroyed the retirement dreams of millions of Americans.
I’m talking about the Federal Reserve’s determination to keep interest rates at or near zero.
Fortunately, Yellen will officially be out of office on Feb. 3, 2018. Unfortunately, that’s too late for millions of thrifty Americans who have carefully saved for their golden years.
These retirement savings were supposed to provide supplemental income to pensions, Social Security, and 401(k) plans.
Moreover, many of the retirees I talk to can’t afford to take a lot of risk because of their shorter time horizons. So, they tend to invest in conservative fixed-income vehicles like CDs, government bonds, money markets and annuities.
Savers today are lucky to earn 1% on their money. And that is just bad public policy courtesy of the Federal Reserve. Nobody can afford to live off a 1% rate of return (unless you have a $10 million-plus nest egg).
And even though the Federal Reserve has raised its benchmark rate three times since December, the interest rate that banks pay us on deposits has barely budged.
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Critical Insights! My colleague Mike Larson over at our sister site Weiss Ratings also just wrote about what he’s seeing in the markets in Weiss Ratings’ free daily email newsletter. You can get signed up to receive his critical insights here. They align nicely with my own, so be sure to check his work out. |
As a result, the Federal Reserve is effectively punishing one of the greatest economic virtues a person can have: thrift.
Moreover, this war on savers has pushed otherwise risk-averse Americans into the stock market. Some have done so reluctantly, kicking and screaming. And unfortunately, most don’t truly understand just how dangerous the stock market really is.
Heck, I’m even getting questions about Bitcoin from income-hungry retirees! Talk about a train wreck waiting to happen.
Everybody loves volatility when it is to the upside. But investors loathe volatility to the downside. Many investors have been lulled into complacency by the steady, seemingly risk-free rise of the stock market. Boy, are they in for a painful surprise.
Indeed, as you can see in the chart above, the stock market is enjoying one of its longest winning streaks in history. But don’t let that extended rally blind you to the pain that bear markets bring.
I strongly suggest you consider these two options:
Boost Your Cash Allocation. If you are 100% invested in the stock market, consider reducing your exposure.  I recommend moving at least a 25% allocation to cash.
Create an Escape Plan. Contrary to what Wall Street wants you to believe, “buy, hold and pray” is not a strategy you want to follow. You will get clobbered when the next bear market comes around. (And one always comes around.)
At a minimum, I suggest you use simple automatic selling strategies. Sales can be triggered by protective stops at pre-set prices or by simple moving averages. For example, as long as the Dow stays above its 200-day moving average, hold. As soon as it falls below, start selling.
I am not suggesting that you need to rush out and sell all your stocks tomorrow morning.
What I am saying is that you need defensive strategies – like the ones I recommend to my service’s subscribers — to protect yourself for the day when the rally runs out of steam.
Best wishes,
Tony Sagami
{ 30 comments }
C’mon Tony, Who are you kidding? Janet Yellen has been Fed chair only since January 2014. She succeeded Ben Bernanke who implemented QE and was responsible for the low interest rate strategy by the Fed, Yes, she carefully continued those policies when she became Chair, but on her watch interest rates have begun to climb (3x since December). If you can’t be fair, at least be accurate.
AND she continued the ‘status quo’, QE mode of operation.
they should all be put in guantanamo.
now, THAT would be an interesting ‘reality show’!
Janet Yellen was merely Ben Bernanke 2.0. She reproduced the same exact Keynesian policy Bernanke was advocating for his entire tenure. Even if interest rates rose by a fraction of a fraction under Yellen, to say she “helped” the situation is to be totally clueless about the enormous dammage the NIRP/ZIRP policy has inflicted on those who do not speculate. The small uptick is too little too late, and actually threatens to tank government bonds on the principle in a bond dumping armageddon. Stephen is right. They all deserve Guantanamo.
What would you have Yellen do? Hire interest rates slow the economy, and that’s no good for nest eggs either. Seems to me Greenspan is more blameworthy, for letting junk investments like credit default swaps get out of hand in the first place.
I find it interesting that your chart does not go back to the GOP Crash of1929… You do realize that the current Fed chair Yellen is only trying to bring America back from the latest GOP 1929 repeat of 2007-2009, don’t you? You know that the last GOP appointed Fed chair was Greenspan who brought us 2007-2009 don’t you? So comes the question; Is it going to be Different this time? Personally, I’m betting it will be not!… :(
It should be noted that EVERY Stock Market Crash since America was formed has come during the Administration of a CONSERVATIVE President. Back in the 1800’s they were called Democrats (Lincoln was NOT a Conservative), but since about the start of the 1900’s they have been called Republicans…. And now, here we are with BOTH a Conservative Republican President and Majority Congress, Just like 1929 AND 2007!
dear mr mike are you aware your statement is bizarre and incomplete first of all the chart that WEISS has supplied states as the header ” D.J.I.A. longest streaks above 50 day M.A 1900-2017 ” this chart has nothing to do with recessions or a depression , im completely baffled by your statement
Liberal Mike failing to impress us with his
astute analysis of why financial meltdowns occur. Simple Mike lays them
all at the feet of Conservatives. It’s as though he never heard the names Dodd
and Frank.
You are astonishingly uninformed. 2007 had zip to do with who was president, and who was Fed Chairman. The GOP caused 2007? Not Fannie? Not Freddie? Not greedy bankers taking advantage of the Democrat party’s catastrophic giveaway called the “Community Reinvestment Act”. (Banks were forced to issue massive numbers of mortgages to credit challenged minorities, handed out by Acorn and other “community organizers”.) Every time Republicans tried to raise red flags, we had such economic geniuses such as Barney Frank and Maxine Waters telling us how safe and secure Fannie and Freddie were. Also, let’s thank Barney Frank and Elizabeth Warren for the utterly dysfunctional CFPB, which has managed to eliminate 1/3 of all U.S banks, forced to close or merge because they couldn’t afford all the nanny-government paperwork. Yeah, it was the GOP’s fault.
I’m hoping you might be able to help me as I read about what might be happening in the financial markets. I lost my job in June, moved out of state to live with my daughter. I have $10,000 in an annuity and $10,000 in stocks & bonds with Principlal Financial, from a company/employee program. Should I leave things as they are or put that into something else. I just got the annuity in August and if I take the other funds out I have to pay tax on them. I have credit card debt that i’m Trying to clear off from my social security. I am 80, in good health,
And thinking about part time work to help supplement income. Thanks for your help.
Totally disagree with your premise. Janet Yellen’s stewardship of the Fed and interest rates has allowed me, and many of my colleagues, gain enough in the stock market to afford a beautiful retirement.
Tony
Finally you’ve sounded the alarm, so to speak. Seems no one wth intelligence , visibility and stature like yourself, has had the brass to call it like it is until now. Janet YELLEN, an Obama appointee, should be charged with theft in office. What a disaster. The damage she created, with some other Fed members along for the ride, may be incalculable.
Big Part of the problem, the Fed is accountable to no one. Where’s Ron Paul these days?
Two books every thinking American should read, The Creature From Jekyll Island and just recently the book Fed Up, both are real eye openers.
Tony, have you read either or both of these books? If not I highly recommend. Thanks Tony.
Robert from Ohio.
But what about those of us who benefitted on the other side? Yes, my return on savings dropped to less than one per cent, but the rate on my mortgage also dropped to 2.25% when it bottomed out for several years.
And do you believe the conspiracy theorists who claim that the Fed lowered interest rates so that some of us would refinance our mortgages, thereby lowering our deductible mortgage interest which in turn would raise our income taxes?
I totally disagree with you on buy-and-hold: Like Cramer a person should know “why” he
holds that stock. ALL BULL MARKETS WILL CRASH. Dont worry about your stock
nosediving — it will come back. PUT YOUR MONEY INTO A GOLD ETF or similar
vehical and build a warchest. When the bear market comes, cash in the gold
(gold will skyrocket because it is “safety”), and go bargain hunting while the prices
are depressed.
Excellent advice! What is your opinion on encouraging retirees to focus on dividend paying investments rather than focusing on stocks rising exclusively? Aren’t dividend paying investments usually less risky overall?
Thanks,
Dow
I Really like this imformation
You are absolutely Right. I’ve been saying this for years. Keeping interest low has destroyed retirement dreams of many. Many elderly folks are putting off retirement and as a result the positions they hold are’n being filled by younger employees.
That statement is so true, I would love to sell our house and buy government bonds and have a decent rate so we can live off our house investment and rent an apartment at a senior place. Thank you Tony for bringing this information too so many senior retirees, I guess what the feds wanted was for seniors when selling there house to invest in the stock market. My best regards. Stephen A Kapogiannis
heres a trick I learned long ago when buying or selling stocks always use proprietary indicators when trading look for oversold conditions when accumulating stocks . look for overbought conditions when selling stocks use limit orders when buying , use general markets orders when selling . Another strategy ive used is to find a stock that liquid but not liquid in other words its average daily volume is in the range of 300,000-1,500,000 shares daily, its going to be declaring a 10q or 10k report within a week to three weeks , its also nearing the end of a trading day the last 15-35 minutes of the day ! and its also the end of a trading week or on a Friday , lastly make sure you accumulate 20,000-30,000 shares a equity trading in the range of $15- $30 is perfect most traders on a Friday are not thinking about a certain stock they are thinking of going out having a few drinks with their friends and to relax for the weekend so…. now test the water use a general market order and sell 1000 shares let it unwind thru the market then 5000 shares then put the rest of the remaining shares out there see what happens …. remember the market has a herd mentality each share price is based on the mentality of its own herd and a lightening strike will scare any herd animal
I agree totally. I am between 65 and 70 years old and for the last maybe 9 years interest rates have been too low. You used to be able to get 4-5% on your money in savings or certificates of deposit. That would have been great for the last 15 years, but the fed had to get overly involved and hold rates low so more people that were unqualified could get homes, so the interest on the fed debt was low, and the stock market could do well for investors. Well most people do not invest in the stock market so that tells you who they were thinking about. I remember when I bought my first home in the 1970’s the mortgage interest rate was 6% and we did not even think twice that it was too high. Politicians will be politicians and rarely are they thinking logically about the general public at large when they enact something. Really sad state we are in.
If you received 4-5% interest,you can be sure that actual inflation was more than that.Add in taxes and you have a guaranteed loser.
Wonderful recommends.
Yellen did not put the policy in place, Bernanke did. I e-mailed Bernake when he first suggested the policy to complain that his policy would hurt senior citizens living off of interest income. To my surprise, he responded. I couldn’t believe that he could be so cold hearted. He stated that the seniors would just have to suffer because he had to bail out Wall Street!
He didn’t just have to bail out Wall Street. He had to prevent the entire world banking system from imploding due to high interest rates when deflation was everywhere. You could have continued to get 4-5%, but you would have lost all that and your principal when the banks went under and the feds couldn’t bail them out (remember Lehman and Bear Stearns). You’ve got to take a broader view than your marginal interest rate, and that’s what Bernanke did.
Instead of looking for the wisdom here ,I see all these writers trying to argue the democrat /republican theme .Could we forget that and focus on our investments? Yellen did not start it but she has not stopped it either. She is the current chair and has been for many years. The writer ,Mr. Sagami is pointing out this policy has been disaster for many seniors as they have not enough money to risk effectively in the stock market and are scared. In general senior citizens have been able to have a conservative retirement with interest earned on their life savings and during Ms Yellens watch this has not been possible. The fact that some of the writers made good money in the stock market is not the point. The point is that seniors have not been able to use traditional conservative means to retire. Mr.Bernankes policies involved the same difficult environment but is now not relevant to today as he retired quite some time ago and the same policies have been continued too the detriment of many senior citizens. Is that plain enough for you to understand?
The author acts like the Fed can just do whatever it wants,with interest rates.They are just trying to keep the Titanic afloat until the next guy takes over.Yellen succeeded in doing that.Don’t blame the Fed for it’s actions.If Americans didn’t demand more from govt than they are willing to pay in taxes,there wouldn’t be massive deficits,that the Fed has to monetize,to prevent soaring interest rates and a depression.If people are dumb enough to save their money in Dollar accounts,they deserve what they get.
You got it, Tony! I’ve been upset over Yellen for years.
QE is said to be the greatest financial experiment in the history of the world. I would like an explanation of what the Fed does with all the paper they own. Fed notes say “they will just let them just run off”. What does that mean???
If QE is the magic bullet then there will never be another down economy or market melt down. I’m a doubting Thomas.
I got out of the market March 2007 when friends on both coasts were telling me about no doc loans and buying properties then selling in a few months for big profits. It’s 2017 and I am again OUT!!!
Seems like no matter the financial situation it’s said to be BAD: Stock Market High: BAD going to crash. Stock Market Low: BAD it’s well low, Tax Cuts: BAD will raise the debt. Tax Hikes: BAD it’s well high. Interest Rates High: BAD can’t afford debt, Interest Rates Low: BAD can’t spark growth by taking lower. DemocratsLiberals: BAD raise taxes, mass regulations, no growth – spend like crazy Republicans/Conservatives: BAD lower takes, less regulations, better growth and well spent like crazy. Can you pick out any policy, person, or party that the majority considered GOOD for the economy? Because I can’t.
The idea that low interest rates will stimulate the economy by allowing companies to borrow and expand is wrong. Business is sitting on money. There is no reason to expand when no one out there has the money to BUY your goods or services. Money NEVER trickles down. We need the government to go into hock and fix the infrastructure of this country. It has to be done sooner later, do it now. That puts money into the hands of blue collar people will be spent on cars, washing machines , houses, electronics, etc. The money tricked up, always does. The Economy will boom, the taxes will come in, and the government can then pay off the debt.
The government cannot try to balance the budget during a recession, which is what the republicans tried to force Obama to do. This creates a spiral to a depression, The government is not a business, it cannot be run like a business, A business would just declare bankruptcy and walk away. Someone else’s problem. Bye.
The government Should be, of the people, by the people, for the people. Business will always figure out how to make money. A good business idea will make money no matter what the interest rate. My mortgage was 17% in the 80’s.
Are you kidding? Thanks to the policies of Janet Yellen and her predecessor, I’ve made a killing in the stock market. I retired in my early 50’s, and I’m not alone in this regard. Keep those interest rates low!!